PPP Loan Update

The U.S. Department of the Treasury recently announced rules required for business owners to make use of the Paycheck Protection Program’s (PPP) loan forgiveness feature. The updated guidance provides both challenges and opportunities for local business owners. In addition, the SBA opened its PPP Loan Forgiveness portal recently. However, there are still some important questions that need to be answered before submitting your forgiveness applications.

As many of our clients received PPP and EIDL loans, we understand the desire to settle those debts as quickly as possible. Given all of these uncertainties though, we are advising our clients to hold off on the forgiveness process until further clarification is provided.

Some of the more important aspects we are seeking additional information on are:

  • There is potential for an “automatic” forgiveness for PPP loans under $150,000. Small businesses who received a Paycheck Protection Program (PPP) loan of $150,000 or less may be able to obtain automatic forgiveness after submitting a one-page attestation form. The attestation form would be limited to one-page, and the small business would simply attest that the loan is eligible for forgiveness and that the business complied with the requirements of the Paycheck Protection Program found in the CARES Act.
  • There may be additional changes to the documentation rules that could reduce the amount of documentation required to be provided to your bank, along with the forgiveness applications. The banks themselves are not interested in reviewing the borrower’s documents and they are even less interested in being liable if the information is incomplete. Therefore, it is likely that documentation will need to be maintained and subject to audit by the SBA, but may not need to be sent to your bank with the application. Issues such as this are still being discussed and could change before the forgiveness applications are submitted to the SBA.
  • Your bank may change the maturity of your loan.  Based on provisions in the Paycheck Protection Program Flexibility Act (“PPP Flexibility Act”) which may have been enacted after your loan was approved and funded, the maturity date may have changed. The PPP Flexibility Act requires that all PPP loans made on or after June 5, 2020, have a 5-year term, and to allow the term of all PPP loans made prior to June 5, 2020, to be extended to a 5-year term.In short, any remaining balance on the loan after all possible forgiveness has been applied will maintain the 1% interest rate but will be on a longer time frame resulting in more interest paid on the loan.
  • The tax treatment of expenses paid with PPP funds. The Treasury and the SBA have established that PPP funds forgiven will not be treated as taxable income. However, the IRS issued ‘IRS Notice 2020-32’, which denies the ability to deduct any expenses which are forgiven. Defenders of the IRS’ position argue that allowing businesses to deduct these expenses would result in business owners receiving a ‘double’ benefit.There are many experts out there who disagree with the IRS’ position and are in talks to explain how this decision may negatively impact small businesses, especially those who already spent all of the funds on payroll but are still struggling to return to previous performance. The AICPA, along with other notable organizations such as the National Retail Federation and the American Dental Association, have established a dialogue in an attempt to overturn the IRS positions stating that this position is counter to the intent of the CARES Act. The resulting conclusion will have a grave impact on many businesses.

The experts at BiggsKofford are here to assist and support our clients as this situation develops and we will continue to keep you updated! Click HERE to visit our resource page or to contact one of our COVID-19 Response Team members.

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