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CPA Long Island

The U.S. Small Business Administration (SBA) and the Treasury Department, on October 13 2020 released updated guidance on the Paycheck Protection Program (PPP) loan forgiveness. This is intended for both lenders and borrowers participating in the small business loan program enacted under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

The latest guidance offered serves to clarify questions surrounding the PPP loan forgiveness application forms’ (3508, 3508EZ, and 3508S) display of an expiration date of "10/31/2020" in the upper-right corner. Despite the date stamp, borrowers may submit a loan forgiveness application any time before the maturity date of the loan, which is either two or five years from the loan origination date, according to the guidance. “However, if a borrower does not apply for loan forgiveness within 10 months after the last day of the borrower’s loan forgiveness covered period, loan payments are no longer deferred and the borrower must begin making payments on the loan.”

The above guidance is irrelevant if the bank which made the loan is not prepared to accept forgiveness applications. This is often the case with many banks.

There are a number of criteria that business owners must meet in order to have their loan forgiven, including maintaining staff levels or quickly rehiring workers that were let go. At least 60% of the loan amount must have been put toward payroll expenses, while the remainder could have been used for interest on mortgages, rent, and utilities.

Even if loans, which required no personal guarantees or collateral, are not forgiven, they carry a very low 1% interest rate.

The Small Business Administration recently provided a simpler forgiveness application for PPP loans of $50,000 or less. The key simplification? A borrower ignores changes in employee headcounts as well as changes in salaries or wages.

If you’re eligible to use the simpler PPP loan forgiveness form, you probably want to do so. The new 3508S application form makes things really easy for PPP loans of $50,000 or less.

Borrowers who received their PPP loans before June 5, 2020 can look at spending over the eight weeks that follow funding of the PPP loan. (This is called an 8-week “covered period.”). But most borrowers will want to use the standard 24 week spending window, or “covered period.”

A larger spending window makes accumulating enough spending to get full forgiveness easier.

The 24-week spending window probably means a borrower only needs to submit records from their payroll service. Most payroll services have forms ready for this submission. (The PPP loan provided roughly 10 weeks of payroll, which means businesses should have more than enough payroll spending within a 24 week window.)

Finally, if a borrower uses the 8 week spending window, the forgivable owner payroll drops to the lesser of 8 weeks’ worth of 2019 compensation for any owner-employee or self-employed individual/general partner or $15,385 per individual. (Compare this to the larger $20,833 limit for owners when using a 24-week covered period.)