Opinion: How to Remove the Confusion About PPP Loans and Avoid Leaving Money on the Table


At the end of grueling 2020, companies across the country that received a portion of $ 525 billion in coronavirus loans under the Paycheck Protection Program (PPP) are grappling with how and when to turn them over To ask for forgiveness.

The official forms, calculations, and conflicting advice can make this a daunting and complex prospect. Add to this changing tax guidelines and the prospect of additional policy action, and it is not surprising that I see a lot of errors and misunderstandings in the PPP proposals that cross my desk.

In my opinion, companies can simplify the process for themselves and avoid unnecessary reductions in forgiveness by following three basic guidelines: 1. Choose the simplest application that you are entitled to; 2. Make sure you take full advantage of the rules to maximize forgiveness. and 3. Apply now, not next year.

The bottom line is that companies should strive to receive as much forgiveness as possible. Businesses have to go out of their way to make sure they understand the rules and count every dollar of eligible expenses to maximize their forgiveness.

Keep it simple

Choosing the right application form for small business administration can mean the difference between a relatively simple process and an unnecessarily painful process.

The easiest route is via the 3508S form for companies that have taken out PPP loans of $ 50,000 or less. The nice thing about this form is that it doesn’t ask questions about full-time equivalents (FTE), working time cuts, or wage / hourly wage cuts, which means the company is automatically exempt from these factors. However, there is a common misconception that the forgiveness calculation can be skipped. This is not the case. So read and follow the instructions.

The 3508EZ form is for companies that have drawn more than $ 50,000 in PPP loan funds, provided they can demonstrate they have passed a double-pronged test. First, the company must certify that it did not reduce the salaries or wages of those who earned less than $ 100,000 in 2019 by more than 25%. Second, the company must either certify: A. that it did not reduce the number of employees or the average paid working hours of the employees in 2020; or B. that its business has declined due to government contracts related to the pandemic. This EZ form provides an easier way to use forgiveness as it does not require all of the FTE or salaries and wages calculations, it is also an easier path to complete forgiveness.

It’s important to understand that if your employees’ total cash compensation has decreased by more than 25%, but their salary or hourly wages have not, you may still qualify for the EZ Route. For example, many restaurant workers saw their income drop due to reduced tips and fewer scheduled hours during the pandemic. As long as the company has not reduced its hourly wages by more than 25% and its business activities have been impaired by official orders (e.g. to restrict seats or close them for a certain period of time), it can still qualify for the EZ form.

Those who do not qualify for the “S” or “EZ” forms have to be prepared for the more complex calculations of the complete 3508 form.

Take full advantage of an advantage

One of the biggest mistakes I see is companies failing to take full advantage of the available labor forgiveness. Some companies don’t count all labor costs because they believe they only have eight weeks to spend the funds.

Indeed, the Flexibility Act passed in June extended the eligible period for all PPP expenditure to 24 weeks. This gives companies much more leeway in terms of eligible labor costs. For example, an employee who earns $ 100,000 per year would have received $ 46,154 over the entire allowable period of 24 weeks, more than double the 2.5 month PPP funding that was provided for that employee. By counting the total allowable wage for this person, companies have a much better chance of achieving full forgiveness even if they received less forgiveness for taking leave or cutting some of their workers.

If the wage bill is insufficient to demonstrate full use of the PPP loan funds and achieve full forgiveness, make sure you are also tracking any eligible non-wage bill. Businesses can include rental, leasing, and interest expenses for both commercial real estate and automobiles or other equipment that the company has leased or financed. By counting every dollar of expenses possible, you can ensure that cuts in wage / hourly wage cuts or cuts in full-time positions have little or no impact on your overall forgiveness.

Trade now

Many companies have been confused about when to ask for forgiveness, in part due to a plethora of media articles telling them that if they wait until the next year they have nothing to lose. In reality, the benefits of waiting have now been taken away.

The IRS recently made clear that the costs paid through PPP loans cannot be deducted when calculating the company’s taxable income and that higher taxable income must be applied to the 2020 tax return regardless of when the loan is made. As of 2020, tax payments are due next March or April. Knowing how much of the PPP loan is going to be made make sure you are filing an accurate tax return and don’t risk adding penalties and interest to your tax bill.

Although companies have up to 10 months from the end of the covered period to apply for forgiveness, applying earlier also means lower repayments on remaining loan amounts. If you leave it until later, it can lead to very large monthly repayments that you weren’t prepared for, especially after adding in SBA processing times of up to three months.

One last note

Many small businesses are confused about the rules for Economic Injury Disaster Loans (EIDL) and how they affect PPP forgiveness. Most companies who applied for an EIDL loan also received an EIDL advance payment (or so-called “grant”) of up to $ 10,000. The advance was usually received shortly after the company applied for the EIDL loan and was deposited directly into the company’s checking account with no need to sign a note or loan agreement. In contrast, the EIDL loan was for a larger amount and the company had to sign a 30-year note and other loan documents before those funds were received.

To avoid double immersion, Congress decided that the PPP forgiveness must be reduced by the amount of the EIDL grant. If a company applies for $ 12,000 for forgiveness but receives an EIDL advance of $ 3,000, the SBA automatically reduces the forgiveness amount to $ 9,000. Companies that have received an EIDL advance must provide the grant amount and the associated EIDL loan number (also known as the “application number”) if this is indicated on the PPP award application. But they should Not reduce their amount of forgiveness. In this case, the SBA accepts its lower award amount and deducts the EIDL advance payment a second time.

Maximizing forgiveness can save your business a lot of money. So take the time to get it right.

Mark Abell is Senior Vice President and SBA Division Director at NBH Bankserving customers through Community Banks of Colorado, Bank Midwest, and Hillcrest Bank.

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