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Automatic forgiveness for the PPP

Woman smiling using a laptop

A new bill before the Senate proposes to allow anyone who applied for a PPP loan under $150,000 to get automatic forgiveness.

On Monday, July 27th Marco Rubio and Susan Collins proposed an act called the “Continuing Small Business Recovery and Paycheck Protection Program Act.” CSBR&PPPA. Among concerns over documentation and the mass of paperwork that banks will have to sift through to grant forgiveness to PPP small business loan recipients, many business owners are still struggling and hope to be able to apply for more loan funds through the SBA.

According to the new act, for a business to receive round 2 of SBA PPP funding they would need to verify the following:

  1. The borrower must demonstrate that there has been at least a 50% reduction in gross receipts from January 1 to March 31 or from April 1 through June 30 of 2020, as compared to gross receipts for the same time period in 2019.  Businesses who were not in business during the first and second quarters of 2019 will have other criteria.
  2. The borrower must employ no more than 300 employees.
  3. The new loan cannot exceed $2M in most cases, and cannot exceed $10M when combined with other SBA loans approved in the last 90 days (including PPP, EIDL, and Main Street loans).

Eligible businesses are: non-profit entities, veterans organizations, tribal businesses, self-employed individuals, sole proprietors, independent contractors or small agricultural cooperatives. Publicly traded businesses and entities affiliated with the People’s Republic of China cannot qualify.

Banks will be held harmless

The proposed act provides that there will be no “enforcement action” against a lender who acted in good faith in relying upon certification or documentation submitted by a borrower, and the banks will receive 3% of new loans for up to $350,000, and 1% of the excess above that.

Borrowers with loans under $150,000 would simply attest to their good faith effort to comply with PPP loan requirements.  

The SBA has reserved the right to audit any and all loan recipients who attest to the use of their PPP funds in this way.  Business owners are advised to retain records of their use of the PPP funds for 3 years even once forgiveness is granted.

For loans between $150K and $2M borrowers would have to certify the existence of the lender documentation and retain those records for 3 years after the Application for Forgiveness is filed.

The 8 to 24 week covered period during which a borrower has to spend sufficient amounts to receive forgiveness will now apply for a period of time selected by the borrower, which will start on the day after the borrower receives the funds, and will end on any day selected by the borrower, but no later than December 31, 2020.

The percentages remain at 60/40

60% of the loan amount must be spent on payroll, group health insurance, and pension contributions.  And, 40% can be spent on nonpayroll costs. Those nonpayroll costs have been expanded to include the following:

  • Covered operations expenditures.
  • Property damage costs.
  • Covered supplier costs.
  • Covered worker protection expenditure.

IRS Notice 2020-32 is still in force

IRS notice 2020-32 provided that PPP expenses that result in forgiveness will not be deductible for tax purposes.  IRS Notice 2020-32 will remain in effect. If, however, you choose to declare the loan funds as income, you can deduct expenses as usual.  Consult with your CPA to learn more about the benefits of declaring your loan funds and deducting expenses.