Paycheck Protection Program Loan Forgiveness: My 24 week covered period has ended or almost ended. What’s next?

The CARES Act’s PPP program put $525 billion into the hands of small businesses to retain and pay employees and to assist in paying rent and utility expenses during the Covid-19 pandemic. While the funding provided small businesses forgivable loans, the program’s rules and extensions continue to bewilder small business owners, their banks and advisers.

Through the beginning of October, banks and small businesses have continued to struggle with the forgiveness process as the SBA had only begun to provide forgiveness to lender banks on behalf of the borrowers.

Given a new forgiveness application form was just released by the SBA on October 8, PPP lenders are about to be deluged with loan forgiveness applications. You should get your forgiveness application in sooner than later!

Here are a few of the many things to take into account regarding loan forgiveness.

When is the loan forgiveness application due date?

The SBA clarified that borrowers may submit a loan forgiveness application any time before the maturity date of the loan. Loans received before June 5 have a two-year term, while those issued after have a five-year term. The loan payments, however, are only deferred until ten months after the borrowers’ 8-week or 24-week covered period ends. The covered period refers to the period during which the PPP funds received and used are eligible for forgiveness. The covered period is 24 weeks or borrowers can elect an 8 week covered period if they received their loan before June 5. Upon loan forgiveness, the SBA will remit the appropriate forgiveness amount to the lender, plus any interest accrued through the date of the payment. The lender will provide forgiveness to the borrower after funds receipt from the SBA.

What form is required for the loan forgiveness application?

Small businesses should check with their accountants or financial advisors to determine which form should be used.  The SBA has issued three forms: 3508, 3508EZ and 3508 S.

  • Form 3508S is a one-page form for borrowers with loans $50,000 or less. It still requires certifications, but the calculations and documentation for the amount being requested for forgiveness are not required. Also, those qualifying for this forgiveness application are not subject to “forgiveness reduction” due to reduced FTE’s or salaries.  The SBA estimates that approximately 70% of the loans issued will qualify for the 3508S.
  • Form 3508EZ is a much easier form than the 3508 to complete and requires far fewer calculations and additional worksheets. Yet, only borrowers who can certify that they are not subject to the statutory reductions to forgiveness because of reductions in compensation or employees are eligible to use this form.

Many banks delayed opening their loan forgiveness application process, anticipating the simpler process for smaller loans. Borrowers cannot submit the easier 3508S form if they’ve already submitted a 3508 or 3508EZ. Despite not needing to provide calculations and support as part of the 3508S form submission, borrowers will need to retain records and support for their loans and forgiveness applications for six years after forgiveness or repayment. The six years retention rule applies with whatever forgiveness application form is submitted.

How long will it take for my loan forgiveness to be approved or provided?

Lenders have 60 days to review a forgiveness application, regardless of which form was submitted. From there, your forgiveness application is submitted to the SBA and the SBA has up to 90 days to evaluate your application and may contact you for additional information. Once this has been completed, your lender will communicate the final result of your forgiveness application. Interest started accruing with the disbursement of your loan proceeds, but interest accrued on the portion of the loan forgiven will also be forgiven. Payments for your loan – for any amount of loan and interest accrued on amounts not yet forgiven – will begin ten months after the end of your covered period.

How does the PPP loan affect my business’ income taxes?

The loan forgiveness component makes the PPP program, in essence, a non-taxable US federal government grant. The amount of the loan that is forgiven is recognized as non-taxable income. Payroll and other expenses – equal to the loan forgiveness amount- used to support the amount forgiven are not tax-deductible for the business. Any expenses incurred that exceed the loan forgiveness amount are tax-deductible even if they were used originally to support the loan qualification. The borrower should work with their tax advisors to address all the nuances of tax avoidance.

How can we help?

CFOs2GO started developing PPP subject matter expertise the day after the CARES act was announced. Our group is working non-stop to support clients in their efforts to secure these loans and have them forgiven. We are equipped to help your small business in all phases of the PPP loan process as well as provide consulting and advisory support for managing your business during and beyond the Covid-19 pandemic.

 


 

Chris Burns co-leads the firm’s Start-ups, Rapid Growth & pre-IPO Practice. His hands-on financial leadership has helped deliver increased shareholder value, growth in cash flow and profits to startup and established market leaders. His strong foundation in large public technology and CPG companies, including Oracle and Clorox, combined with twenty years of experience in industry-leading global eCommerce, software and SaaS startups, developed Chris’ ability to bring hands-on financial leadership and partnership to CEO’s, boards, their investors and staff.

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