The U.S. Small Business Administration’s Paycheck Protection Program, or PPP, helped many American businesses keep their workforce employed during the coronavirus crisis. The application period has closed — however, another round of funding is expected in the near future. Many small businesses are waiting to learn more about the upcoming program, while those who received PPP loans in the first round are deciding when to apply for forgiveness.
Updates To The PPP Loan Program In October 2020
Updates to the PPP loan program are expected in October 2020, so many accountants are advising small businesses to wait before planning new applications or applying for forgiveness until further clarification is issued.
Proper Documentation Is Now More Important
The SBA will place greater emphasis on providing proper documentation regarding PPP funding moving forward. Applicants will be required to document the need for their loan and demonstrate that they had no other reasonable options with respect to raising capital.
There Will Be Another Round Of Funding
Another round of PPP funding is expected, but it will likely be restricted to organizations that experienced revenue drops of 25 percent or more. However, this percentage may change. Funds will be limited and are likely to run out quickly.
Bipartisan Support For The Home Act
There is bipartisan governmental support for implementing tax credits for individuals and businesses alike. The Home Act would allow employees to claim credits of as much as $150 for costs related to working from home, while businesses could receive as much as $2,000 per employee, up to a maximum of $50,000, in tax credits.
It Is Now Recommended That You Wait
In general, experts currently recommend businesses wait to file for PPP forgiveness. However, there are a few situations where filing as soon as possible makes sense. For example, a business that anticipates undergoing a merger or acquisition should go ahead and file, as should a company that is expecting major layoffs or other significant changes.
There Are Plenty Of Other Relief Options Available
Although PPP is a very attractive program, it is important to keep in mind that there are other relief options available as well, including EIDL (the SBA’s Economic Injury Disaster Loan), payroll tax deferment, employee retention credits, grants, and main street lending. Businesses should consider all their options before deciding which is best for their unique circumstances.
Reasons Why Your Organization Should Wait To File For PPP Forgiveness
The SBA is currently forgiving PPP loans that meet employee retention criteria and use the funds for eligible expenses. Many PPP borrowers plan to seek full forgiveness of their loans, but doing so as soon as possible is not necessarily the best course of action.
The forgiveness application can be submitted any time before the loan matures if the business has not used all of the proceeds, and many financial experts believe that patience and preparation could actually end up saving your company money. Outlined below are some positive considerations for waiting to file.
No Deadline For The Loan
Right now, there is no deadline for filing the forgiveness application. Interest does not begin accruing until at least one year after the date the loan was received, which means potential applicants can await further guidance before proceeding. Those who apply and are determined to be ineligible for forgiveness must start paying principal and interest right away, so it is wise to take advantage of the available time to take qualifying steps toward full forgiveness.
Less Taxable Income
One big reason it may be better to wait to file for forgiveness is because you could inadvertently increase your 2020 taxable income by filing the application now. Although the loan is tax free, the expenses used for the loan cannot be deducted. While Congress may change this in the future, it is currently a big consideration for businesses.
Decrease Record-Keeping Burden
By choosing to delay, you may also be able to avoid some of the record-keeping burden involved in applying for forgiveness. For the EZ forms currently in use, the necessary documentation in case of an audit requires considerable time and effort. Congress may reduce this significantly for loans less than $150,000, so those borrowing smaller amounts may find it beneficial to wait.
Major Changes May Be Made
Presently, there are different bills in the House and Senate presently, and it is difficult to predict which bill might pass. Regardless, there is a good possibility that major changes could be made to the forgiveness rules that would be worth waiting for, such as permitting more non-payroll expenses.
SBA Has Not Yet Clarified Rules
The SBA will not be clarifying the rules until Congress passes PPP2 (the HEROES and HEALS Acts). Although some additional guidance was issued in August 2020, there are still some gray areas. If a borrower’s forgiveness is dependent on one of those gray areas, it is advisable to wait for clarification.
No Advantages To Submitting Now
Many accounting experts agree that there is no advantage to submitting applications right now, and filing quickly could end up working against your business. Because the SBA has years to audit the applications, it is more prudent to take your time and ensure you file accurately.
Banks Are Not Currently Accepting Applications
Most banks are not accepting applications at the moment, which means that going through the process of applying and collecting required documentation may be ineffectual.
Speak With A Certified Public Accountant About The PPP Loan Program
If you have any questions or concerns about the PPP loan program, speak with the certified public accountants at Diener & Associates CPAs LLC. They can answer your questions about the right time to file your case, discuss the process, and help you make the best decision for your business.