Plan for impacts of PPP loan forgiveness

Fred Fischer PHOTO CREDIT: Contributed

The past months have presented area employers, their owners and employees with the tremendous challenge to navigate their operations through the COVID-19 pandemic landscape.

Businesses small and large have attempted to adapt operations and use available government programs to soften economic impacts to the business and their employees. The Coronavirus Aid, Relief and Economic Security (CARES) Act established the Paycheck Protection Program (PPP), which is administered by the U.S. Small Business Administration (SBA), to provide loans to qualifying entities as one such program.

The loan program has proved popular. According to an analysis by the Telegraph Herald, more than 550 businesses in the 10 counties in and around Dubuque County received individual loans in excess of $150,000.

In addition, 1,905 Dubuque County businesses received individual loans below the $150,000 threshold, totaling nearly $56 million according to SBA data through Aug. 21.

With the passage of time, many loan recipients are beginning to turn their attention to the process of obtaining forgiveness of their original loan amounts. Business owners and management should consider the following tips for minimizing the stress of the process:

• Use the Frequently Asked Questions documents published by the SBA. The most recent updates were released Aug. 11 and are periodically updated. There are two documents, FAQ for Lenders and Borrowers and Frequently Asked Questions on PPP Loan Forgiveness.

• Document the entity’s eligibility to have received the loan at inception. To be eligible, the recipient must have met the original eligibility criteria.

For example, among the eligibility criteria, prospective borrowers certified “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant” in their loan application.

It might be important to document the uncertain conditions that were known or knowable at the time of the loan inception.

This is especially true in situations where actual results might have developed more favorably than was known or knowable at the time.

• Draft your preliminary computations for forgiveness, including supporting documentation. Consider contacting your lender to ensure your documentation is in a format preferred by the lender.

It is important that your supporting documents have dates on them to ensure the expenses were incurred during the covered period.

• Consider federal and state tax regulations on impacts of forgiveness. The Internal Revenue Service published guidance in April 2020 outlining its position that otherwise deductible business expenses paid with forgiven PPP funds will be disallowed as tax deductions in computing the business taxable income. It will likely take legislative action to ensure deductibility of expenses paid with forgiven PPP funds. Depending on specific fact patterns, federal and state tax regulations could create multiple tax nuances that should be considered.

• Be patient. According to SBA guidelines, borrowers have up to 10 months following the end of their coverage period to submit an application for PPP forgiveness. At present, Congress continues to discuss additional stimulus measures. Elements of automatic forgiveness for certain loans appear to be part of the conversation.

The guidance is complex and changes periodically. It has been a tremendous challenge for regulators to articulate rules applicable to such a wide array of businesses of different shapes, sizes and across industries. Consider the counsel of your accounting and tax provider to apply the concepts to individual situations to maximize the value to your business.