Fall Updates and Considerations Regarding PPP Loan Forgiveness– October 28, 2020 by Adam Hill

Understanding and applying for forgiveness for Paycheck Protection Program (PPP) loans continue to be a priority, and a challenge, for many loan recipients. Below offers the latest updates and clarifications to help you prepare.

1. SBA Releases Simplified Forgiveness Forms for Smaller Loans

On October 8, 2020, the Small Business Administration (SBA) released a simpler PPP forgiveness application for loans of $50,000 or less. The application is aimed at making the process easier and more efficient for small business owners receiving the loan. Note that some banks are not accepting applications for loans below $150,000 due to the potential automatic forgiveness Congress has been considering for borrowers in the $50,000 to $150,000 range.
>> Visit our COVID-19 Resource Center

>> View our webinar: PPP Loan Forgiveness Application: Now, What are those rules again?

2. What is the Actual Deadline for PPP Loan Forgiveness?

The SBA has also provided guidance in response to confusion regarding the deadline for forgiveness applications. Each of the forms (3508, 3508EZ, and 3508S) displays “Expiration date: 10/31/2020” in the top right corner, leading many borrowers to assume applications are due October 31, 2020. This date, however, is merely a compliance item related to the Paperwork Reduction Act representing the last day of approved use of that version of the form, which will be updated as necessary.
Forgiveness applications can be submitted any time after using all of the PPP loan proceeds and before the maturity date of the loan, but applications should be submitted within 10 months of the borrower’s covered period to avoid the amortization taking effect over the remaining term. For example, if your covered period ended on September 30, 2020, you have until July 31, 2021, to apply for forgiveness before loan repayment begins. Most borrowers are likely to use the 24-week covered period, which begins when the loan was received.
Before filing your application, you should consider several factors, including:

  • The timing of forgiveness in regard to the tax impact it could have on the nondeducibility of expenses paid with PPP loan proceeds.
  • Do you need to restore salary reductions before filing?
  • Do you need to make FTE reductions based on business operating metrics in the near term?
  • If you are calculating a portion of the loan that will not be forgiven:
    • Discuss the safe harbor exceptions available with your CPA.
    • Discuss with your bank extending the loan from two years to five years.

>> Read the new set of FAQs on loan forgiveness, released on October 13, 2020, which includes discussion on the deadline.

3. Related Party Rent Payments Now Have Restrictions

The SBA issued an interim final rule (IFR) in late August that forces you, the borrower, to look through any rent payments where you have any common ownership with the landlord. The related party rent paid will be limited to the interest expense paid on the underlying mortgage of the property. This IFR also clarified that rent must be reduced by any subleased space where you are collecting rent, and you must reduce your interest expense for any mortgage on a building that has other tenants (besides your business). You must also reduce utility payments if the individual tenants are not separately metered. 
Most of this IFR reinforces the concept that you cannot get a bigger benefit than you are out of pocket for, which makes sense. The related party look through to the mortgage interest limitation was surprising to many, and only reiterates the challenges of this program as the SBA continues to issue new rules after the fact that could significantly impact borrowers. 

4. Other Considerations When Applying for PPP Forgiveness

Below are a few additional issues that have come up as we continue to consult with our clients on their PPP forgiveness applications:

  • Full-time equivalent reductions apply until the application is filed but should not impact the forgiveness calculations after you have filed, based on the guidance to date.
  • The reduction percentage is based off of total eligible expenses, so it is possible to have a reduction and still receive full forgiveness, especially if you are using the 24-week covered period. 

The SBA along with Treasury’s guidance has issued 25 IFRs and 52 FAQs on the program, in addition to 27 FAQs specific to loan forgiveness. Add in the SBA rules that most borrowers haven’t read and that most professionals have trouble interpreting, and it makes for a very confusing and intimidating application process. Just remember to document everything, exercise your best judgement and Cohen & Company is one call away from helping you through the process. 
Contact Adam Hill at ahill@cohencpa.com, Peter Myeroff at pmyeroff@cohencpa.com  or a member of your service team to discuss this topic further.

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Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.