Why it’s important to get your PPP loan forgiveness application ready today – even if you’re waiting to submit to your lender

With banks now accepting Paycheck Protection Program (PPP) loan forgiveness applications, businesses with these loans should make preparing their forgiveness application a top priority. Organizations also should determine the most appropriate timing of submitting their application, given the potential financial and tax impacts of forgiveness on the business.

Having the critical pieces in place as your organization starts to prepare its forgiveness application makes all the difference – Eliana Mendez, accounting manager for Grand Haven-based LightCorp, can attest to this. Mendez makes this point while recognizing that keeping up on the PPP loan process isn’t an especially easy one.

“It’s complicated and it really takes breaking it down,” Mendez says of the PPP loan requirements and guidance, much of which hasn’t always been clearly defined by the federal government. “It’s like you’re trying to put a jigsaw puzzle together, without the picture on the box and with very little direction – without a clear picture of what you need.”

To help make sense of things, and to ensure LightCorp was on the best path for loan forgiveness, Mendez has been working closely with her team of Rehmann advisors.

“We have had a lot of questions, and it has been nice to lean on Rehmann for support. They’ve let us know that we’ll figure it out together. It definitely feels like a partnership,” she says.

If your business is in the loan forgiveness application stage, here are some quick reminders as well as common questions and our recommended action steps as you move through this process.

Reminders:

  • The covered period for PPP loans is up to 24 weeks or Dec. 31, 2020. Most banks began to accept these loan forgiveness applications mid-August and have 60 days to review and determine the level of forgiveness.
  • A business’s goal is to receive full loan forgiveness. Businesses can apply for forgiveness up to 10 months after the coverage period ends without required payments.
  • It’s also important to have solid documentation of how you spent your loan dollars, and to be aware of how you can remedy any shortfalls in employee salaries and wage reductions as a result of the pandemic. Taking these steps will increase your chances of total loan forgiveness.
  • In early June, President Trump signed the Paycheck Protection Program Flexibility Act (PPPFA) of 2020, which provides more flexibility for participants in the PPP program, including allowing those participants to defer the payment of certain payroll taxes that the CARES Act prevented them from deferring. You can read more about the PPPFA and loan flexibility in our article here.

FAQs

Why is it so important to work on my forgiveness application right now – don’t I have plenty of time to do this?

The short answer: it’s one less thing to worry about and to have on your plate. Preparing your application and having it ready for submission provides a sense of closure while also allowing your organization to focus on upcoming business matters, such as effective cash flow management, year-end reporting, and 2021 planning.

Which forgiveness form should we use, and what about the possibility of automatic forgiveness of loans $150,000 and less?

As of Oct. 6, there are two types of loan forgiveness application forms: Form 3508 and Form 3508EZ. These forms were last updated June 16, 2020 and each has an expiration of Oct. 31, 2020. While there are legislative proposals to reduce this paperwork and streamline the process for loans under $150,000, and changes to these loan forgiveness applications could be made, as of this date, no changes have been made. If you have questions about which form to use, contact your Rehmann advisor for assistance.

Once we have our application ready, when exactly should we submit it to our lender?

Applying sooner rather than later may be wise given these uncertain times – a continual downturn in the economy, for example, could lead to having to reduce your workforce, which in turn could impact the amount of forgiveness granted. It’s important to work with your lender to ensure proper documentation and processes are being followed.

While important to get all your paperwork, documentation, and application completed, the timing of the submission has planning opportunities that need to be considered before you submit it to the bank. We know that the guidance has been a moving target since the inception of the PPP Loan Program and it’s still evolving on the forgiveness. There has been discussion of providing an “automatic forgiveness” for certain size loans and additional guidance for content of the forgiveness application continues to come. You may be able to take advantage of these simplified forgiveness applications/exemptions (if they do actually get enacted).

Tax planning is another consideration in the timing of your forgiveness application. While additional guidance should come on this, we know that now the expenses paid with tax-free income (PPP Loan forgiven) would be non-deductible for taxes. That will create a much larger tax liability for most all businesses who received PPP Loan forgiveness. The expenses only become non-deductible once the loan is forgiven. If you time your application later in the calendar year (fiscal year if applicable), you should be able to park the tax impact of the non-deductible expenses and non-taxable income in next year, pushing the potential tax impact as far out as March/April of 2022.

One recent development: The U.S. Small Business Administration, in consultation with the Treasury Department, has released a simpler loan forgiveness application for PPP loans of $50,000 or less. Go here for more details.

This Small Business Administration resource provides additional details regarding loan forgiveness questions and concerns.

If you would like to talk through PPP loan forgiveness and how we can help with this process, please reach out to your Rehmann advisor. You also may contact us at info@rehmann.com.

Rehmann is focused on providing practical guidance and insights to help empower organizations and individuals as we navigate through the uncertainty and complexity of this pandemic, together. Find resources and guidance at our COVID-19 Knowledge Center. Please click here to subscribe to our communications to ensure you remain up to date during these uncertain times.

Published in COVID-19

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