May 26, 2020
Small businesses that accessed the SBA’s Paycheck Protection Program, enabling them to keep payroll flowing during the COVID-19 crisis, now have some guidance on how to claim forgiveness of those loans. The PPP Loan Forgiveness Application provides detailed instructions for borrowers, as well as some clarity around use of PPP funds and how loans can be forgiven.
The application, however, can pose some challenges for many small business owners. It is arduous, requiring plenty of calculations and interpretation. And while many had hoped the new guidance would provide a longer runway in which to use the funds – especially those businesses such as retail and food service still facing shutdowns – the eight-week period still applies.
Good news may be ahead. The House is expected to vote soon on a bill that will give businesses more time for loan forgiveness, among other fixes to the program. The extension has bi-partisan support.
In the meantime, here are some key clarifications on the PPP that business owners should know:
New alternative payroll covered period. Borrowers with a biweekly or more frequent payroll schedule now have the ability to calculate payroll costs starting on the first day of the first pay period after funds were received, and ending eight weeks later.
Guidance on reduced loan forgiveness. If payroll costs and FTE employee numbers don’t match pre-crisis levels, borrowers now have clearer information on how much loan forgiveness to expect. Of note, borrowers who made written offers to rehire workers are still eligible for forgiveness on those payroll costs, even if those workers declined the offers. Additionally, workers fired for cause, those who voluntarily resigned, or voluntarily requested reductions of hours will not reduce the borrower’s loan forgiveness amount.
Clarity on expenses incurred. The application confirms that costs incurred – not just paid – by small business borrowers count towards forgiveness, as long as paid on or before the next regular payroll date (for eligible payroll costs), or on or before the next regular billing date (for eligible non-payroll costs).
Though we now have greater clarity, working with legal counsel, CPAs, or accounting professionals to determine how PPP rules apply to their particular circumstances still makes sense for many small business owners.
What’s next?
We know that times are still stressful, with an economy that is far from recovery. The PPP, along with the Economic Injury Disaster Loan program, have provided critical funds needed to shore up small businesses. But plenty more may be needed.
As new programs and further guidance become available, we are ready to help provide important resources and information to help small businesses navigate through these uncertain times.
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