***Update as of June 18, 2020***
On June 17, 2020 new clarifications on PPP loans were released. Four major loan repayment/forgiveness components have been clarified:
- If the loan was received before June 6, the repayment period is 2 years. If the loan was received on or after June 6, the repayment period is now 5 years.
- Borrowers that received their loan before June 5 have a choice between the old 8 week coverage period and the new 24 week coverage period.
- S corporation owners cannot include health insurance costs as payroll costs but they can include pension and retirement costs.
- Safe harbors for excluding salary and hourly wage reductions in the number of “full-time equivalent” employees from reducing loan forgiveness may now be applied on the exact date that the loan forgiveness application is submitted. Borrowers need not wait until December 31, 2020 to use the safe harbors when applying for loan forgiveness.
***Update as of June 6, 2020***
On June 3, 2020 the senate approved the Paycheck Protection Program (PPP) Flexibility Act, otherwise known as H.R. 7010. This bill, which was signed by President Trump on Friday, June 5th, will increase the chances that a large percentage of a borrower’s PPP loan will be forgiven. There are three main points to this bill that PPP loan recipients should become familiar:
- Extension of the Covered Period
Rather than the PPP loan covering 8 weeks of operating costs, H.R. 7010 extends the period of 24 weeks from the loan origination date or until December 31, 2020, whichever comes first. This change is to support businesses that are currently operating below full capacity due to state and local restrictions or market conditions. The SBA is expected to give further guidance on this portion of the bill in the coming weeks.
- Changes in Spending Limitations
H.R. 7010 allows for more of the PPP loan to be spent on non-payroll costs by increasing the cap for those costs from 25% to 40%. However, there is a “catch” within the bill that is important to note. The bill states that “to receive loan forgiveness under this section, at least 60% of the covered loan amount must be used for payroll costs”. To put this in perspective: Before H.R. 7010, if a borrower takes out a PPP loan for $50,000, uses $25,000 on payroll costs and 15,000 on non-payroll costs, the forgivable amount of that PPP loan would be $25,000 x 75% = $18,750. Though all $50,000 of the loan is not forgiven, the $18,750 would be. After H.R. 7010 takes effect, using the same example from above, since only 50% of the PPP loan ($25,000 of $50,000) was used for payroll costs, none of the loan is forgivable.
- More Time to Replace Full Time Employees and Restore Salaries
Before H.R. 7010, a PPP loan would not be forgiven in its entirety if the borrower lost full time employees during the covered period or if a borrower significantly reduced the average salaries or wages of certain employees during the covered period compared to the numbers reported in the first quarter or 2020. However, a borrower could restore their lost forgivable loan amounts if they are able to fully restore their full-time employees or wages to levels comparable to those reported on February 15, 2020 by June 30, 2020. With the newly enacted H.R. 7010, the previous deadline of June 30, 2020 has been extended to December 31, 2020.
Additionally, the loan maturity date for most PPP loans has been extended from two years to five years, giving borrowers more time to repay their PPP loan and reducing their monthly installments.
On Friday, May 15, 2020, the Small Business Administration (SBA) released the Paycheck Protection Program (PPP) loan forgiveness application, causing most small business owners to scratch their heads when reviewing the lengthy and complicated application. Here at Mazur and Associates, we want to support small businesses like your own by explaining the PPP loan and the Loan Forgiveness Application.
First, a brief overview of the PPP loan itself.
The PPP loan program was created to help small business owners keep their employees on the payroll during the COVID-19 crisis. The SBA will forgive PPP loans if all employees are kept on payroll for eight weeks and the loan funds are used for payroll costs, rent, mortgage interest, and/or utilities. According to the SBA, the loan will be fully forgiven if the funds have been used for the previously mentioned categories; however, 75% of the forgiven amount must have been used for payroll costs. Loan repayment will be automatically deferred for 6 months, requires no collateral or personal guarantees, has no small business fees attached and has a 2-year maturity period with an interest rate of 1%. It is also important to understand that loan forgiveness is based upon the employer maintaining or quickly rehiring employees as well as keeping their pre-COVID19 salary or wage levels. Therefore, loan forgiveness will be reduced if full-time employee headcount decreases or if salaries and wages decrease. Any small business owner can apply for a PPP loan at any SBA lender, federally insured institution, or local lender that is participating in the program. To see what qualifies as a small business for PPP loans, click here. To apply for a PPP loan, click here. We highly recommend that you consult a CPA or a financial advisor before you attempt to apply for a PPP loan to ensure that your application is completed accurately with the maximum allowable loan amount quantified. Also, once the eight-week period has elapsed, it is critical to hire a professional to prepare the eleven (11) page Loan Forgiveness application. The SBA’s Loan Forgiveness calculation form is quite complex and specific documentation must be attached in order to have your PPP loan completely forgiven. Mazur & Associates, CPAs and Business Advisors, PC should be your choice for this endeavor, as each of our CPAs has over thirty (30) years of experience in addressing the needs of small businesses like yours. Before the eight-week spending window has elapsed, kindly telephone our office at (732) 936-1230 to schedule a conference during our regular business hours. We are available Monday through Saturday to assist you.
Second, the following is a brief overview of PPP Loan Forgiveness process.
On the surface, the application for PPP Loan Forgiveness appears to be relatively simple. Step one is to complete the application (also available electronically) and step two is to submit the application to your lender who will then assess your payroll and other expense documentation for forgiveness. However, although the SBA has provided detailed instructions with the application, it is still exceedingly difficult for a layperson to complete correctly and dot all of the “I’s” and cross all of the “T’s”. Because the application was just released, there is much room for borrower’s interpretation of the instructions. Since tens or hundreds of thousands of dollars are at stake, a professional’s expertise in preparing and scrutinizing all attachments is highly recommended. The CPAs at Mazur & Associates are members of the American Institute of CPAs (AICPA), Tax Section and have access to specialized tools to ensure the accuracy of each client’s PPP Loan Forgiveness application. In addition, since late March our CPAs have taken hours of continuing professional education webinars on all aspects of the CARES Act, FFCRA and the Payroll Protection Program.
The SBA has stated that more guidance will be forthcoming over the summer months before the Loan Forgiveness portion of the PPP expires on October 31, 2020. Again, we cannot stress enough that you should not attempt to complete and submit this Application without first consulting an experienced CPA!
Here at Mazur and Associates we are qualified to render the highest level of expertise to assist our fellow small businesses. Several of our clients bypassed our counsel and applied for their PPP loan before consulting with us. Unfortunately, a few of these small businesses received a smaller PPP loan than what they were entitled to! We are here to serve you and work to maximize the Loan Forgiveness of your business’ PPP loan. Call us today at 732 936-1230 or email firstname.lastname@example.org to schedule a teleconference or virtual appointment. Stay safe, all!