Paycheck Protection Program – Where Are We Now?
The Paycheck Protection Program (PPP) was one of the Small Business Administration’s (SBA) most popular COVID-19 relief programs and officially came to a close at the end of June. These loans were in such high demand primarily because of the possibility of loan forgiveness, assuming certain conditions were met. Now that the ten-month covered period is quickly winding down, the attention amongst borrowers has shifted to the loan forgiveness process. Many PPP first draw loans have an August, September, or October 2021 deadline to apply for forgiveness, so now is the time to start evaluating how to maximize PPP forgiveness and the Employee Retention Credit.
The requirements to receive forgiveness, including the complexity of loan calculations, vary based on the loan amount. Unfortunately, there have been significant delays and other challenges in receiving and processing loan forgiveness applications. The good news is there have recently been several changes made to address this issue, which we have summarized below.
Direct Forgiveness Portal
The SBA’s Direct Forgiveness Portal, which began accepting applications from borrowers on August 4, 2021, was implemented due to issues, and resulting delays, encountered by smaller lenders and financial institutions. One major issue was the lack of technology to accept applications online and human resources to review applications. The Forgiveness Portal allows borrowers with loans less than $150,000 to submit a forgiveness application online, with the SBA and not the bank. Once received, lenders are notified and can submit a decision to the SBA from within the portal. It is important to note, lenders are required to opt-in and are required to follow various guidelines. However, borrowers will be pleased to learn that more than 600 banks are already signed up.
This change should significantly improve the loan forgiveness process for lenders through reduced costs, increased efficiencies, and more timely remittance of forgiveness payments from the SBA. Naturally, these changes will positively impact borrowers as well. It is expected to reduce the complexities of application and submission and lead to a reduced wait time on the loan forgiveness decision.
COVID Revenue Reduction Score
Second draw loan recipients must demonstrate a revenue reduction of 25% or more during one 2020 quarter compared to the same quarter in 2019. When a borrower with a loan of less than $150,000 requests forgiveness, a corresponding certification must be provided. As part of the submission, the appropriate documentation must be compiled and sent for review by the lender. Unfortunately, the same issues plaguing forgiveness applications are also present here.
To reduce complexities, the SBA has introduced a new COVID Revenue Reduction Score. This score will be automatically assigned to each borrower with the new SBA portal based on several data points, including industry, geography, and business size. As a result, lenders can rely on the score as an alternative to the current review process. In situations where the score is not sufficient, borrowers will be required to submit additional documentation.
PPP & Employee Retention Credit Interaction
Many businesses have attempted to take advantage of the Employee Retention Credit (ERC), a quarterly payroll tax credit worth $7,000 per employee per quarter in 2021. However, employers who received a PPP loan cannot use wages for PPP forgiveness and the ERC. Therefore, it is important to carefully review when wages were paid compared to the PPP coverage period and any potential ERC qualifications. Additionally, businesses should be diligent in including all eligible non-payroll costs on their forgiveness applications. Failure to do so could potentially reduce the amount of ERC credits that will eventually be available. However, when done appropriately, the PPP forgiveness and ERC can both be maximized, helping many businesses find much-needed funds during a difficult time.
One of the factors that can be used to qualify for the ERC is a significant reduction in gross receipts. Initially, it was unclear if a forgiven PPP loan would have to be included in the gross receipts’ calculation, artificially inflating the gross receipts for a given quarter. However, the IRS recently announced a new Gross Receipts Safe Harbor, which allows a company to exclude certain forgiven government loans (including shuttered venue and restaurant revitalization grants) from inclusion in the gross receipts’ calculation. The change clarifies that forgiven PPP loans do not need to be included in gross receipts and will enable more businesses to claim the ERC and receive the financial benefits initially intended by Congress.
The challenges and frustrations many borrowers are experiencing with the Paycheck Protection Program -should reduce because of the SBA and IRS changes. In addition, the expanded access to the Employee Retention Credit should spell additional savings as well.
Contact Us
If you have questions about the information outlined above or need assistance with a PPP or ERC-related issue, Klatzkin can help. For additional information, click here to contact us. We look forward to speaking with you soon.
©2021 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.