Business owners have already begun applying for the $284 billion Paycheck Protection Program, which relaunched on Monday at select institutions. But you may already be thinking about loan forgiveness.
In this vein, the latest $900 billion relief bill has much on offer. In addition to expanding the slate of covered expenses, the bill reduces the forgiveness paperwork burden for the smallest borrowers. And it increases the number of categories eligible for forgivable expenses.
The best part: Most of the changes apply for new and "second draw" loans, as well as retroactively for extant loans, as long as you haven't already applied for forgiveness. If you're among the 1.3 million businesses that have already applied for $170.5 billion in PPP program funds, you're out of luck, says Jennifer Spiegel Berman, a lawyer and CEO of MZQ Consulting, a benefits compliance company.
Nevertheless, "this bill is literally a Christmas tree," says Berman, referring to the benefits for small businesses--even beyond the forgiveness changes. Here are six of the biggest ways the PPP forgiveness process will change for current and future borrowers:
1. More time to spend.
Borrowers have until March 31, 2021 (or until funds run out), to apply for an initial or second-draw PPP loan. No end date has been set for borrowers to apply for loan forgiveness (the application itself is not yet available). But all would-be forgivable costs must be incurred between the date of the loan origination and a date of your choosing eight to 24 weeks after your loan's origination. Initially, borrowers had just eight weeks to spend their full loan proceeds. The law was changed to widen that window to 24 weeks on June 5, 2020.
2. New categories of expenses are now covered.
While businesses will still be required to apportion 60 percent of their loan proceeds to payroll costs, the remaining 40 percent can now go to a wider array of expenses--beyond just rent, mortgage interest, and some utilities, which were covered under the Cares Act.
Those categories of covered expenses include:
Business operations -- anything from human resources expenses like payroll processing fees or benefits administration fees to accounting software expenses.
Property damage costs -- expenses related to protests or vandalism resulting from public unrest, which were not covered by insurance or other compensation.
Certain supplier costs -- any supplier goods needed to run your company are eligible, as long as the contract or purchase order was in force prior to receiving the loan. Certain perishable goods may also be eligible, as long as they're deemed essential to the business.
Safety expenditures -- any cost associated with meeting public health guidelines, from installing a drive-through window to masks and gloves.
3. Forgiven PPP expenses are tax-deductible.
The new law also eliminates the tax consequences of receiving a PPP loan if your PPP loan was forgiven, confirms Neil Bradley, executive vice president of the U.S. Chamber of Commerce. Previously, the IRS said business owners could not deduct forgiven PPP expenses like payroll from their taxes. It would be viewed as getting a double benefit, but many lawmakers noted that this was indeed their intention when crafting the Cares Act. This latest law codifies that intention.
Going forward, the new law says you can deduct those forgiven expenses as you would in the "normal course of business," says Bradley.
4. Forgiveness eases for the smallest borrowers.
Borrowers of both old and new loans of less than $150,000 will be required to submit a single, one-page form, which is still forthcoming. That form is expected to ask you to indicate the number of employees your company was able to retain over the covered periods. It will likely also require you to tally the amount you spent on payroll costs, which can include some benefits expenses, along with the total value of the loan.
Borrowers will need to attest that they followed the forgiveness rules, but they won't be required to furnish proof unless they are audited. In that case, you may need to provide documentation. This process tends to happen when someone is suspected of committing fraud, but it can happen to anyone, Berman says. The new law requires all borrowers to hold on to supporting documents for three to four years. "Do your future self a favor," and keep your paperwork close at hand, she adds.
That streamlined process will also help lenders, as they'll be required to spend less time on helping these borrowers achieve forgiveness, says Kristen Granchelli, vice president of government affairs and public policy at the National Association of Government Guaranteed Lenders. "Lenders are operating here at warp speed," she says. "If they are feeling like this is a smoother process, the end result is going to be a program where more lenders are helping more borrowers," she says.
5. Lenders get a pass.
The new law also frees lenders from conducting additional due diligence on a borrower's loan forgiveness application, regardless of the loan size. Previously, there was no real guidance for the banks, so they asked for more paperwork to back the loans up, just in case, Berman adds. That, of course, increased the complexity of the process for everyone.
You could look at this as a gimme to the banks, and a potential boondoggle, as fraudsters could cash in. But Granchelli notes the positives to simplifying the process. The idea, she says, is to give confidence to all of the participants in the program; it's a precaution against second guessing everything that a borrower says.
6. EIDL grants no longer count against your forgiveness calculation.
If you received an Economic Injury Disaster Loan (EIDL) advance--that is, grant money of up to $10,000--it will no longer be deducted from your PPP loan forgiveness calculation. In other words, the amount that you'll be forgiven will no longer be reduced by the amount of your EIDL advance, which was previously the case, confirms Ami Kassar, CEO of Multifunding, a small business loan advisor in Ambler, Pennsylvania.
What's more, it's OK if you already filed for loan forgiveness. Kassar adds that over the next few weeks, banks will reimburse businesses if their forgiveness calculation changes as a result of their EIDL advance no longer factoring into their forgiveness equation. An example: say you have a $100,000 PPP loan but you also received a $10,000 EIDL grant. That $100,000 would formerly be reduced by $10,000. So even if you shelled out for covered expenses in the prescribed 60:40 ratio, you could be reimbursed only for $90,000. The EIDL program is the SBA's long-standing low-interest disaster loan program. It was first authorized to support businesses hampered by the coronavirus under the Cares Act.