The federal Payment Protection Program (PPP) ended on August 8, 2020. Although no new applications are being accepted, the thousands of small businesses who already received a loan — and the banks who issued those loans — must now make decisions about the process of obtaining loan forgiveness.
The federal Payment Protection Program (PPP) was designed to help small businesses — and their employees — stay afloat during the COVID-19 pandemic. As long as these cash handouts are used for payroll and other essential operating expenses, it’s free money. If not, the business must repay the government.
Confusing the issue are uncertainties about if or when the program will be reinstated, as well as the many grey areas in the rules on what business expenses do and don’t qualify for forgiveness.
In any case, PPP loan recipients should be thinking about submitting their forgiveness application. Why give back the money you don’t have to, right? Here are our accountants’ best tips to help you as you wade into the process.
Tip #1: Don’t Submit Too Fast
While the SBA’s PPP forgiveness portal is open to lenders, many banks are not yet accepting loan forgiveness applications from businesses. Why? Because the situation is still up in the air and may change in your favor before the application deadline.
For example, Congress was discussing the possibility of automatic forgiveness for loans of $150,000 or less, and a streamlined application for loans up to $2 million. If that happens, it would either completely eliminate or greatly reduce your (and your bank’s) paperwork burden.
There’s still plenty of time to wait and see. The deadline for sending in the forms is 10 months from the end of the loan’s covered period. So if your loan period ends in September 2020, the forgiveness application deadline is July 2021.
Stay in touch with your accountant for PPP developments that may affect your best interests.
Tip #2: Self-Employed Borrowers *Really* Need to Wait
As the rule stands now, you must compare your 2019 and 2020 incomes in order to determine what compensation you’re eligible for. But you won’t have any proof of your 2020 income until the end of the year.
Hopefully, more guidance for self-employed PPP loan recipients will be issued soon, but until then, there’s nothing you can do but wait.
Tip #3: Count All the Utilities You Can
Utility costs such as electricity and water were always considered qualifying expenses. But more recent guidance documents from the SBA also include internet services which have proven to be essential during this time of working from home and remote delivery of goods and services.
It’s possible — but not yet clear — that transportation costs for a business vehicle could be included as well. Again, keep an eye out for future updates and clarifications from the SBA.
Tip #4: Take Advantage of FTE Exceptions
Because the PPP was intended to help employees keep their jobs during the pandemic slowdown, the general rule is that wages — or full-time equivalent (FTE) — must remain and pre-pandemic levels.
However, there are a variety of allowable exceptions for a reduced workforce, pay scale, or working hours. To mention just a few, employees who:
- Refused an offer to return to their job
- Were fired for cause or voluntarily resigned
- Voluntarily requested and received a reduction in hours
Tip #5: Keep All the Documentation
Documents you need to submit with the forgiveness application. Those that aren’t needed for submission but required to be retained by the borrower. Anything else that relates to your business operations during the period of the loan. It’s better to have too much backup than be missing the one piece of paper you needed to receive your PPP loan forgiveness.
You’ll need to document:
- Full-time equivalent employees on payroll and their pay rates
- Retirement and health insurance contributions
- Eligible interest, rent, and utility payments
Need help with your PPP loan forgiveness application or documentation? The small business accounting experts at Xendoo have the information you need. Check out our affordable monthly plans today!