Fear & Loathing on your Paycheck Protection Program Forgiveness Application

August 24, 2020


PPP loan Forgiveness app

For months, small business owners have relied on their Paycheck Protection Program loans to keep the lights on and their employees paid. They have been counting on the fact that those loans will eventually be forgiven.

Now that the application window has closed, is it time to deal with converting your PPP loan into a grant?

Maybe, but there is no cause for panic. Don’t let visions of daunting paperwork keep you up at night. The PPP forgiveness process can be confusing, especially because the Small Business Administration continues to update its guidance. The good news is that there is still plenty of time before you have to finalize your application, and you’re certainly not alone in being confused.

Understanding Your Eligibility for PPP Forgiveness

As you may recall from when you applied to the program, eligible businesses could receive PPP loans of up to 2.5 times their average monthly payroll costs (up to $10 million). A business’s loan could potentially be fully forgiven if the money was used for payroll costs, rent, utilities and interest on mortgages, with at least 60 percent of the forgiven amount being used for payroll. (The payroll threshold was initially 75 percent before being lowered to 60 percent in June.) Forgiveness could also be reduced due to a drop in headcount or average hours worked, or a drop of more than 25 percent in employee pay.

For the loan to be considered for forgiveness, a business would have 24 weeks from the date of the loan disbursement to spend the money, or until December 31, 2020, whichever is earlier. That means that a lot of businesses are still in the process of spending their PPP loans.

A business may still be eligible for forgiveness, even if its payroll expenses do not end up accounting for 60 percent of its loan. Initially, there was confusion about whether partial forgiveness would be afforded to businesses whose payroll expenses fell below the 60 percent threshold. The Treasury Department has since clarified that these businesses are eligible for partial PPP forgiveness, as long as 60 percent of the amount that’s forgiven was used for payroll.

For example, a business that got a $50,000 loan and used $18,000 for payroll would be eligible for loan forgiveness on up to $30,000 ($18,000 being 60 percent of $30,000).

Timing Your PPP Forgiveness Application

The first hurdle in getting PPP forgiveness is making sure you qualify. Next, there is the timing question. If the forgiveness application is available now, should you complete it now?

There is no immediate need to be anxious about the PPP forgiveness process hanging over your head. In fact, there are a few reasons to go slow. For one, things continue to change around the guidance that PPP recipients are receiving about loan forgiveness. The SBA has been gradually updating its frequently asked questions throughout the summer. Presumably, it will continue to expand that guidance in the coming months, offering clarity that may change the way some businesses complete their PPP forgiveness applications.

Then there are the legal questions. Some legislators are also currently working on passing legislation that would affect PPP forgiveness. A group of Senators have proposed the Small Business Expense Protection Act of 2020. This act would guarantee small businesses the right to deduct business expenses related to their forgiven PPP loans. Currently, there’s some debate about whether business expenses that would normally be deductible will still be deductible if they were paid for with PPP loans.

The bottom line is that there really is no rush to apply for PPP forgiveness before 2021. The SBA says that a business has 10 months from the end of its covered period to apply for forgiveness. So, if this is a hectic moment for your business, you can probably put this application on the back burner for a bit.

Dos and Don’ts of Applying for Forgiveness

Even if you are not ready to submit your PPP forgiveness application, it’s wise to familiarize yourself with this form. It looks deceptively simple. Calculating the numbers you fill in can be tricky, though, especially if your headcount fluctuated a lot during your covered period. Here are just a few of the things to keep in mind.

Do calculate payroll costs accurately. For many small businesses, this will be the most complicated part of getting PPP forgiveness. Use the SBA’s loan forgiveness calculation forms to make sure your numbers are right and remember to include cash compensation. Gross tips are considered part of your payroll costs. So are any commissions, bonuses or hazard pay you have paid out during the covered period.
Don’t use the wrong form. There are two versions of the PPP forgiveness application, which look nearly identical. Only use the EZ form if you know you meet those criteria.
Do understand the Safe Harbor provision. For businesses that have been unable to operate at a normal level during the pandemic, PPP forgiveness includes a safe harbor for FTE reduction with a deadline of December 31, 2020.
Don’t make any guesses. It’s the borrower’s responsibility to make sure all the information on the forgiveness application is accurate before sending it to their lender. There can be severe consequences, including jail time, for submitting inaccurate information about how you used a PPP loan.

We know that the PPP forgiveness application process is making a lot of small business owners nervous. Fortunately, you don’t have to figure it out all alone.

On Wednesday, August 26 at 1:00 PM,  Jeff Plakans, President of Commonwealth Payroll & HR and Stephanie Franklin, Commonwealth’s PPP Compliance Expert will share the latest updates and strategies for completing the loan application. Learn more about this webinar and how you can get the guidance you need to make the right choices for maximizing your forgiveness.

If you are looking for more specific, individualized guidance, Commonwealth is also offering a PPP Forgiveness Coach Program available to both clients and non-clients. Learn more about how your business can benefit from being ‘Coached’ through the PPP Loan Forgiveness Application.

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