PPP loan borrowers tackle the new paycheck protection program forgiveness application
Businesses that obtained Paycheck Protection Program (PPP) loans now – as of May 15 – have a recipe to follow to have the loans forgiven. They have 56 days after the receipt of the proceeds to spend the money. If all the requirements are met, the businesses may be relieved from repaying all or part of the loan.
The New Application
The recipe for forgiveness is in the Small Business Administration’s 11 page loan forgiveness application. Download the application and skim it. Then, I recommend splitting the task of completing the application into four steps:
Study the application. Be sure to learn the meaning of important terms, such as covered period, alternative payroll covered period, eligible payroll costs, and eligible nonpayroll costs. Learn the time frames that apply to payroll vs. non-payroll costs, as you may need to use two different periods to capture those costs. This information will be on page 2 of the application under “summary of costs eligible for forgiveness.”
Gather facts that apply to your business, including the timing of your payroll to see if you need an alternative payroll covered period (its seems to me that most businesses will want the alternative, which allows you to do your calculations based on your existing payroll processing schedule).
Fill out, review and submit the application (this is easy if you do your homework in steps 1 and 2).
Prepare documentation files for future reference.
Each step may take 30 minutes or so, with the exception of steps 1 (studying) and 2 (fact gathering) which realistically will take longer based on your learning style and how well you organize your records.
The fourth step is post-submission record-keeping of documentation that supports you if you are called on to prove your business necessity to claim and forgive the loan, which you need to maintain for six years. You’ll need the documentation if you are questioned about your position in a subsequent inquiry, which can be a criminal investigation.
This fourth requirement is on page 10 of the Loan Forgiveness Application. Your documentation needs to support the “necessity of the loan request and its eligibility for a PPP loan,” as well as your loan forgiveness application, and your “material compliance with PPP requirements.”
What’s At Stake? A Lot
Take these tasks seriously; you want to be sure that you have your facts straight. You will be certifying to the veracity of those facts. You do not want to be prosecuted for swearing to a falsehood.
Keep in mind that the Small Business Administration (SBA) “retroactively tightened the loan qualification requirements, particularly with regard to the “necessity” of a business obtaining a PPP loan,” said attorneys Jeff Scroggin and Michael Burns of Scroggin & Company, P.C.
As they point out, under the federal False Claims Act, a borrower can be civilly penalized for up to three times the amount of the PPP loan if the borrower made a false statement in the loan application or made other representations to the government with “reckless disregard” for the truth or falsity of that statement. Other civil and criminal penalties may also apply to the SBA PPP Loan program.
In preparing to complete the application, you need to be aware that there will be some gray areas. For example, Michael Maksymiw, of Marcum’s SBA Task Force, pointed out that there is presently no SBA guidance related to wages for relatives, spouses, or children of owners. In a post, “The SBA releases the Paycheck Protection Program Loan Forgiveness Application,” he stated that it appeared that these costs would count as eligible for forgiveness.
In addition, it appeared that accrued retirement plan costs paid during the 8-week period may qualify as eligible payroll costs. This “may be an opportunity for companies to pay 2019 accrued retirement contributions during the 8-week period and have those retirement costs count toward the 75% payroll cost threshold.”
Here are some additional points that Maksymiw addressed:
- Borrowers can elect to exclude any amount of non-payroll costs as part of their loan forgiveness application.
- Eligible costs include rent or lease payments pursuant to an obligation in force prior to February 15, 2020, for real or personal property. It appears that vehicle and equipment leases will be considered eligible rental costs.
- Eligible costs include electricity, gas, water, telephone, internet, and transportation costs where service began before February 15, 2020. There is still no guidance regarding what costs are included as “transportation,” other than gas for business vehicles, which was indicated in previous guidance.
The Task At Hand
The task at hand is to do your best with the forgiveness application while keeping meticulous records. Involve your advisers, most importantly your accountant and lawyer.
Read this “Checklist for Documenting The Necessity of a PPP Loan,” prepared by Scroggin and Burns.
Check out the resources at Leimberg Information Services, Inc. (LISI) with a free trial (under newsletters you’ll find the checklist, as an example).
Finally, watch this video for a few points to keep in mind.