Preparing for PPP Loan Forgiveness
If your small business has received a PPP loan, we suggest you wait until your lender provides instructions and timelines for you to submit your loan forgiveness application. While many borrowers have reached the end of their eight-week covered period many lenders’ systems are still being developed to accept forgiveness applications. You should however begin gathering documentation in support of your request.
While final guidelines may yet be issued by the SBA or Treasury you will likely have to provide proof of qualifying expenses so make sure to keep very good payroll and expense records. Kranz & Associates has developed guidance and tools to assist companies with accounting for PPP loans, record keeping and documentation for loan forgiveness, and preparation and submission of the Loan Forgiveness Application.
The following actions may increase your likelihood of forgiveness:
- Keep the PPP funds separate: Consider putting the loan into its own designated account to better keep track of the funds.
- Keep disciplined records: Create account codes or sub-codes so there’s a paper trail for qualified expenses.
- Keep supporting documents: Stay organized with your documentation of PPP fund usage – especially for payroll, interest, rent, and utility payments.
You’ll need to provide documents to substantiate how your loan proceeds were used by your business. Many payroll providers are creating custom reports for this purpose so you should check with yours first to see what’s available. If you plan to start gathering documentation on your own, here’s what you’ll need.
- Documents that verify your eligible cash compensation and non-cash benefit payments during the 8 or 24-week loan Covered Period (or Alternative Payroll Covered Period) including bank account statements or third-party payroll service provider reports documenting the amount of cash compensation paid to employees.
- Tax forms (or equivalent third-party payroll service provider reports) for the periods that overlap with the Covered Period (or Alternative Payroll Covered Period.
- Payroll tax filings reported, or that will be reported, to the IRS (typically, Form 941); and State quarterly business and individual employee wage reporting and unemployment insurance tax filings reported, or that will be reported, to the relevant state.
- Payment receipts, c checks, or account statements documenting the amount of any employer contributions to employee health insurance and retirement plans
Note: If you qualify for the EZ application, you may not need to gather the FTE documents.
Full-time Equivalent (FTE) Documents
For the full forgiveness application, you’ll need to provide documents showing your average number of FTE employees on payroll per month based on one of the following date ranges of your choice:
- February 15, 2019 and June 30, 2019;
- January 1, 2020 and February 29, 2020; or
- If you’re a seasonal employer, either of the previous date ranges or any consecutive twelve-week period between May 1, 2019, and September 15, 2019.
If you were unable to return to the previous FTE levels be prepared to maintain documentation related to any permitted “safe harbor” FTE reduction situations which include:
- There was an inability to rehire individuals who were employees on February 15
- There was an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020 (for example, you placed advertisements that required certain education or work history, and no applicants applied who met that minimum criteria), or;
- You were unable to return to prior FTE levels because your business was not able to operate at the same level of business activity due to compliance with legal requirements established or guidance related to the maintenance of federal, state, or local standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19
For non-payroll expenses you submit for forgiveness, you’ll want to gather documents showing (1) that these obligations/services existed before February 15, 2020, and (2) eligible payments from the 8 or 24-week loan Covered Period. These include:
- Business mortgage interest payments
- Copy of lender amortization schedule and receipts or canceled checks verifying eligible payments from the Covered Period
- Lender account statements from February 2020 and the months from the beginning of the covered period through one month after, verifying interest amounts and eligible payments.
- Business rent or lease payments
- Copy of current lease agreement and receipts or canceled checks verifying eligible payments from the Covered Period
- Lessor account statements from February 2020 and from the beginning of the Covered Period through one month after, verifying eligible payments.
- Business utility payments
- Copy of invoices from February 2020 and those paid during the Covered Period, and receipts, canceled checks, or account statements verifying eligible payments.
Organize all the documents you gather and put them in a safe place. The SBA requires you to retain them for six years after your loan is fully forgiven and/or repaid, and to have them available for review in the future if requested.
Prioritized Paycheck Protection Program (P4) Updates
More details have become available on provisions of the P4 which the House and Senate continue to debate. In its short three pages the Act, as currently written, encompasses the following elements. Underlined sections reflect new information or changes from what we’ve previously reported.
- Establishes October 1, 2020, as the deadline for submission of a loan application but also gives the Administrator of the SBA the authority to extend that deadline if circumstances warrant
- Eligible businesses must have already expended their initial PPP loan or be on pace to exhaust the funding before the end of the covered period
- Small businesses with fewer than 100 employees, as well as sole proprietorships and self-employed individuals, would be eligible. Borrowers must be able to demonstrate a revenue loss of 50% for a quarter in 2020 compared to a quarter in 2019 (for existing businesses), compared to the first two months of 2020 (for a new business), or for a seasonal business, two months in 2020 compared to the same two months in 2019.
- Enables the borrower to apply for a loan with their existing PPP lender or with a new lender
- Incents lenders to make loans of $50,000 or less by establishing a minimum $2,500 fee for those loans to replace the current 5% fee for loans less than $350K
- Gives the SBA Administrator the authority to extend the covered period beyond the current December 31, 2020 date
- Amends the forgiveness covered the period to allow a borrower to apply for forgiveness any time after eight weeks and up until December 31, 2020, and also gives the SBA Administrator the authority to extend that deadline beyond the end of the year.
- Borrowers are only required to certify in good faith that 1) economic conditions makes the loan necessary to support ongoing business operations, and 2) the funds will be used to retain workers, maintain payroll, or cover eligible non-payroll costs.
- Publicly traded companies would be ineligible for P4 loans
- Businesses in the accommodation and food service industries (NAICS 72) with multiple locations may apply for a loan for each of their locations but will be limited to a $2M maximum loan amount
- Up to $25B would be set aside for loans to businesses with fewer than 10 employees, and businesses in rural and underserved communities
- As with the PPP, loan amounts would be up to 2.5 times average monthly payroll with a covered period of eight weeks after which the borrower can request loan forgiveness
New Recovery Related Legislation
Two new bills are under consideration in Senate committees which would provide further assistance to small businesses.
- Save America’s Main Street Act. Introduced by Senator Ron Wyden of Oregon, this act would amend the IRS Code of 1986 to provide advance tax refunds to small businesses.
- Reviving the Economy Sustainably Towards A Recovery in Twenty-twenty Act (RESTART). Introduced by Senator Michael Bennett of Colorado, this act extends the PPP to benefit small businesses whose revenues were impacted negatively by at least 25%, the current PPP threshold being 50%
PPP Loan Update
- Through July 10 a total of 4,907,655 loans have been made (an increase of 22,267 since last week) totaling $517.4B, a decrease of $4.1B since last week as a result of loan funds being returned.
- The average loan amount has dropped an additional $1,300 and now stands at $105,400.
- California small businesses have received 584,057 loans, an increase of 2,917, and .5% from last week. California’s loans continue to represent 11.9% of total loans. Their $67.4B of loan value continues to be 13.1% of the total.
- Loans less than $150,000 represent 86.6% of all loans made and 27.6% of total dollars loaned.
- Loans between $350K and $1M account for 4.0% of loans made and 21.8% of total dollars loaned.
- 67.0% of the loans made were for no more than $50,000.
- As reported in loan applications, PPP funds supported 51.1M jobs approximately 84% of all small business employees.
- PPP loans supported 6.5M jobs in California, the highest of any state, followed by 4.5M in Texas, and 3.2M in both New York and Florida. As a percent of total state small business payroll, this represents 77% for California, 82% for Texas, and 75% for New York.
- The following three industry sectors received the greatest share of loan funds – health care and social assistance (12.9%), technical and professional services (12.7%), and construction (12.4%).
- $131.9B of approved PPP funding remains.
- Additional detail on PPP loans by amount, state, lender size, and activity click here.
PPP FAQ Update: New Question Added
The last FAQ update was the addition of Question and Answer #49 added June 25 by the Treasury at PPP Program FAQ’s.
- Q: What is the maturity date of a PPP loan?
- A: If a PPP loan received an SBA loan number on or after June 5, 2020, the loan has a five-year maturity. If a PPP loan received an SBA loan number before June 5, 2020, the loan has a two-year maturity, unless the borrower and lender mutually agree to extend the term of the loan to five years. The promissory note for the PPP loan will state the term of the loan.