PPP Loan Forgiveness

I think we all agree that 2020 have been a very atypical year for all of us. Individuals, business and government have had to make modifications to their daily and operating routines in order to respond to the Covid-19 unexpected pandemic scenario that we are still facing. Some of these changes involved sudden business interruptions which threatened employment, business sustainability and, as a result, our general economic environment.

One of the major government responses to this situation was the CARES Act that was signed by the President on March 27, 2020. This act, among other important measures, included the Paycheck Protection Program (PPP) whose principal purpose was to provide small businesses with the resources they need to maintain their payroll, re-hire laid off employees, and cover applicable overhead. This program was implemented by the Small Business Administration (SBA) with the issuance of up to $659 billion in forgivable loans to small business and independent contractors.

However, the forgiveness of these loans is subject to compliance with a set of requirements established by the SBA. These requirements include submitting an application through the lender bank’s portal. Also, it is required to submit evidence of payroll (including benefits), rent, mortgage interest and/or utility expenses together with the application.

As we are still in this changing and challenging environment, some PPP Lenders are currently unable to process a large volume of forgiveness applications through their online platforms. Some of them are inviting borrowers systematically based on the date the loan was disbursed, so they can work on applications in a staggered process to ensure compliance.

Have you or your business received a PPP Loan? Would you like to be well prepared to accelerate your loan forgiveness when it is available?

There is still time to get your required information organized and available, whether you are doing it alone or with assistance from your accountant. Here are some tips that will help you to organize your required information:

1) Stay in contact with your bank lender and/or financial advisor – Most of the bank lenders are issuing invitations to borrowers to access their portals. So, you may know other businesses that have started they forgiveness process and some that are still waiting even for the same lender. Make sure you are constantly reviewing your emails from your lender and/or be in constant communication with them.

2) Touch base with your accountant - It is a good practice to touch base with your financial advisor or accountant as they will be an invaluable resource in getting you organized and completing the application for you. Getting everything right on paper could make the difference between your receiving loan forgiveness or not.

3) Determine your coverage period - If you received loan prior to 6/5/2020, you can choose 8-week or 24-week forgiveness period. After 6/5/2020, you can only choose the shorter of 24-week period or December 31,2020. If you have used all the funds in eligible expenses in a 8-week period and your loan was disbursed before June 5, 2020, you may want to use the 8-week period as it accelerates the application process. Otherwise you may use the 24-week period which will give you more time to use the funds in payroll, for example. The chosen period is also important because it will determine the time range for the supporting documentation to be provided with the application.

4) Start collecting and organizing your supporting documentation – Even when your lender may not have granted you access to their portal application, the best practice is to start collecting and organizing the supporting documentation. Make sure it is complete and organized. This will mitigate the risk of not being in compliance with the forgiveness requirements. An index will be an excellent tool to organize the information. If you have doubts as to which documentation you will need to provide, see the guidelines below:

Payroll:

a) Payroll reports from your payroll provider – some people don’t know, but if your business utilize a third party payroll provider, they already have options to generate Payroll Reports including all the information required by SBA for PPP Forgiveness. So, they may accelerate the forgiveness application processing. You may want to look for these reports in your payroll service provider platform or contact your provider as it will expedite the process.

b) Bank account statements – If your business does not use a third-party payroll service provider, you will be required to provide bank account statements supporting the compensation paid to employees.

c) Payroll tax filings – If your business does not use a third-party payroll service provider, you will be required to provide payroll tax Filings (typically Form 941).

d) Income, payroll, and unemployment insurance filings for your state (e.g., Forms DE-9 and DE-9C in California).

e) Payment receipts, cancelled checks, or account statements documenting the amount of any employer contributions to employee health insurance and retirement plans that will be included in the forgiveness amount.

Rent:

a) Copy of current lease agreement – in order to be valid for forgiveness, starting date of the rent agreement should be effective before February 15, 2020

b) Receipts or cancelled checks verifying eligible payments

Business Mortgage Interest:

a) Copy of lender amortization schedule – in order to be valid for forgiveness, starting date of the mortgage agreement should be effective before February 15, 2020. If you do not have a copy with you, it is a good idea to request it to your mortgage lender as soon as possible.

b) Copy of receipts verifying payments, or lender account statements.

Utilities:

a) Copies of invoices and receipts, cancelled checks or account statements

5) Finally, keep documentation for the next 6 years – some loans forgiven may be subject to audit procedures from SBA in the upcoming years. The minimum required period for document retention is 6 years. Make sure you are able to store this information in a safe and accessible place for this period.

Tackling these tasks today should help ensure that you are in good shape to start the forgiveness process when the banks are ready and the payroll reports are available. As always, if you have any questions, don’t hesitate to ask for our help.