Paycheck Protection Program Update: What’s the Latest?
Update – October 16, 2020: On October 13, 2020, the SBA released guidance confirming that the PPP loan forgiveness deadline is not October 31, 2020, but instead the loan maturity date. Learn more here.
The barrage of almost weekly changes and updates to the Paycheck Protection Program (PPP) has diminished over the last several weeks. Congress and federal regulators have been focused on negotiating another Coronavirus stimulus package but have not agreed. This has left the PPP largely unchanged and put borrowers in a holding pattern on loan forgiveness. The good news is that several updates and changes have been announced since the beginning of October. It started with the announcement that the Small Business Administration (SBA) has started approving forgiveness application and forwarding payments to banks. It was followed up by the issuance of a new “simpler” loan forgiveness application for borrowers with loans less than $50,000. The application was significantly reduced and provided eligible borrowers with an exemption from the full-time equivalent (FTE) employee and salary/wage reductions impact on forgiveness. Finally, the guidance provided information on whether borrowers need to modify the Promissory Note to qualify for the extended deferral period. To help clients, prospects, and others, Klatzkin has provided a summary of the changes below.
Loan Forgiveness Begins
For business owners that have already submitted a loan forgiveness application, the good news is the SBA has started approving applications. On October 2, 2020, SBA administrator Jovita Carranza announced that forgiveness applications had been approved and repayment amounts issued. Remember, the SBA forwards the forgiveness amount directly to the lender and not the borrower.
Extended Deferral Period – Promissory Note Changes
Under changes made by the Paycheck Protection Program Flexibility Act of 2020, there was an extension of the deferral period for borrower’s payments of principal, interest, and fees on all loans. The change extended the deferral period from 6 months to 10 months. Many borrowers were concerned about whether changes to the promissory note were necessary to take advantage of this change. On October 7, 2020, the SBA and Treasury updated #52 of the PPP FAQs, which addresses this question and clarifies that although lenders are immediately required to provide the extended time, no changes to the promissory note need to be made.
New “Simpler” Loan Forgiveness Application
To make the forgiveness process easier for borrowers with loans less than $50,000, on October 8, 2020, the SBA introduced the streamlined SBA Form 3508S. The application has been reduced to less than two pages and is accompanied by an instruction guide. In addition to the forgiveness reduction exemptions mentioned above, the application does not require calculations to be included.
Similar to the others, borrowers applying for loan forgiveness using the simplified application are still required to determine the amount of eligible payroll and non-payroll expenses incurred during the Covered Period (or Alternative Covered Period). The borrower should calculate the total of eligible cash compensation (up to $100,000 of annual salary), employee benefit costs, and owner compensation (also limited to $100,000 per year) for payroll expenses.
Borrowers are also required to calculate eligible non-payroll expenses. This can include interest on mortgage obligations and rent and utility expenses. Payments qualify if they service mortgage or utility expenses that were started or entered before February 15, 2020. These expenses must have been paid during the Covered Period and may not exceed 40% of the total forgiveness amount.
Documentation Requirements
Several documents must be submitted with the application to support the forgiveness amount. This includes copies of bank statements, third party payroll provider reports, tax forms including federal and state filings, payment receipts, canceled checks, and account statements documenting the employer contributions to retirement plans or health insurance.
Document Retention Requirements
Borrowers must retain, but not submit, all records relating to the loan, including copies of documentation submitted with the original loan application, information supporting all certifications, details related to the forgiveness application, and any other information that demonstrates compliance with PPP requirements. The SBA requires these documents to be retained for six years after the date of loan forgiveness.
Contact Us
The introduction of the new forgiveness application will make it easier for certain borrowers to receive loan forgiveness. Although the calculation requirement has been removed from the application, borrowers are still responsible for producing accurate calculations. If you have questions about the information outlined above or need assistance with anything related to the PPP, Klatzkin can help. For additional information, call us at 609-890-9189 or click here to contact us. We look forward to speaking with you soon.
©2020 Klatzkin & Company LLP. The above represents our best understanding and interpretation of the material covered as of this post’s date and should not be construed as accounting, tax, or financial advice. Please consult your tax advisor concerning your specific situation.