Factors Impacting the Timing of PPP Forgiveness Application

Forgiveness for Paycheck Protection Program (PPP) loans is a foremost topic currently on the minds of borrowers. Experts are cautioning borrowers not to rush to apply for forgiveness, but take their time to be sure they have as much information as possible to maximize loan forgiveness, along with keeping options available for potential other benefits currently proposed.

A borrower may submit a loan forgiveness application any time on or before the maturity of the loan—which is 10 months from the end of the covered period. This would equate to August 2021 for loans disbursed in April 2020. The timing of an application and forgiveness could affect the timing of the tax effects and also when to show the income in financial statements.

The AICPA released several factors impacting the timing of PPP forgiveness application that borrowers should consider:

  • Has the borrower spent the full amount of PPP funds?
  • Is the borrower trying to sell the business? See October 2 SBA Procedural Notice.
  • Is the loan under/over the dollar amount of potential threshold for simplified forgiveness? If the loan is under $50,000, use the simplified application Form 3508S. In addition, there are legislative proposals that may reduce paperwork and streamline the process for loans under $150,000.
  • Has tax planning around timing of deductibility of expenses paid with PPP funds been considered?
    • On November 18, the IRS issued additional guidance on the timing of deductibility of expenses related to PPP loans. The guidance essentially states the expenses are non-deductible in 2020 whether forgiveness applications are submitted in 2020 or 2021. See the press release.  here is a possibility Congress may override the IRS regarding the deductibility, perhaps with the next stimulus package.
  • Does the borrower need to make business operating decisions that may include Full-Time Equivalent (FTE) reductions?
  • Does the borrower want to get PPP debt off the books for financial reasons? Are their loan covenants to consider?
  • Is the lender accepting applications? Please contact your bank to see what process they are following.
  • What is the situation of cash flow for your business? Consider applying later if you feel a portion of the loan may not be forgiven. Repayment will begin at forgiveness determination or 10 months from end of covered period.

It’s also important for the borrowers to coordinate PPP forgiveness expenditures with other grant requirements that they may have received. Waiting for further Congressional action and guidance should be considered to evaluate your company’s best options for overall benefits and PPP loan forgiveness.

For more information on your tax and financial reporting implications or if you have general PPP questions, please contact your CDS professional.

Source: AICPA

Last Updated: 11-19-20