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The new PPP loan forgiveness application is causing lots of confusion. Here’s what to know so far

May 20, 2020, 5:47 PM UTC

Small businesses have waited—and waited.

On Friday, the Small Business Administration and the Treasury finally released the PPP forgiveness application, an 11-page document with details that answered, and stirred, questions for small businesses and the CPAs and lawyers advising them. “We at least have a worksheet, if you will, to start the process,” notes Eric Holland, a partner at law firm Reed Smith.

Guidelines for how to get small-business loans forgiven (the main draw for the loans—which could be up to $10 million, under the Paycheck Protection Program) were long overdue. In fact, guidance for the forgiveness portion was due at the end of April, per the CARES Act. The loans can be used over an eight-week period, and 75% of the loans must be used for payroll, while the remaining 25% can be used on things like mortgage interest and other expenses (a stipulation put in by the SBA, not the act itself).

Yet businesses are still awaiting clear guidance on how the forgiveness will actually work. The SBA said it will “soon issue regulations and guidance to further assist borrowers” with the applications.

Those like William McDevitt, a CPA based in the New York area, were expecting regulatory guidance, not a form. “Everything has been bleeding out, trickling out, coming out later than you’d like. People who are advising clients like myself are used to dealing in the gray zone, but this has just been unbelievable,” he says. “It did answer and clarify quite a number of questions, but there’s just as many questions that are still open.”

Many businesses are banking on getting that crucial forgiveness for their loans. Otherwise, they’ll have a 1% loan to pay back over two years.

Those like Wade Foley, who owns a social media marketing company based in Charlotte, N.C., are now turning their attention to forgiveness. Foley was approved for a $10,000 PPP loan on May 8. He doesn’t think getting his loan forgiven will be too challenging, but he’s planning to parse it out with his accountant: “I think the main thing for me is just exactly how much of that $10,000 will be able to be forgiven,” he says.

Big questions answered

A few key questions were answered in the application, CPAs and lawyers say: One of the big provisions in the new forgiveness application gives flexibility for businesses who received the loan in the middle of a pay period. Businesses are now able to use an “alternative payroll covered period” for those with a biweekly (or weekly) payroll schedule over the eight-week period, and can elect to calculate “eligible payroll costs” using the first pay period after they got the PPP funds, per the application.

Another notable clarification was aimed at concerns that only expenses borrowers paid during the time they had the loan could be covered for forgiveness. Now, borrowers can include payroll and eligible non-payroll expenses that were incurred (not only paid) during the eight-week period after receiving the loan, so long as they’re paid on or before the following regular payroll date. “Paying an expense is certainly different than incurring an expense, [so] that was good to see,” notes Ken Logsdon, a partner at law firm Dorsey & Whitney.

Plus, the application contains a new exemption from the loan forgiveness reduction for borrowers if they have made “a good-faith, written offer to rehire workers that was declined”—calming some businesses’ fears about trying (and failing) to rehire employees in time to receive full forgiveness for the loan. The application also includes some clarity on how to calculate “full-time equivalents” for employees, which is key for the forgiveness side of the loans, among several other measures detailed on the Treasury’s site.

What’s unclear?

Yet some advisers note there is still “too much ambiguity” to give their clients the full picture, says McDevitt.

Some lingering questions CPAs and attorneys have are more nuanced or complicated, like how benefits for health care, 401(k)s, and the like will be covered in the forgiveness period if a business moved up those payments or disbursements to fall within the eight-week period (it “still remains unclear in the application,” says Logsdon). Other questions are far simpler: “When’s the form due?” asks McDevitt. “Something as simple as that, there’s no clarity on that.” (Lawyers and CPAs are confused by the expiration date, Oct. 31, 2020, at the top of the application, which they say doesn’t have a clear explanation.)

Others like Reed Smith’s Holland suggest although more clarity was given around the timing of payroll costs, “there are questions about, if you paid the amount during the covered period but the underlying expenses or payroll costs were for a period preceding the covered period, is that eligible for forgiveness? These are things that all of these borrowers are considering in connection with the application for forgiveness,” he notes of his clients.

Despite concern about the rule that businesses have to spend 75% of their loan on payroll costs (and the other 25% on mortgage interest payments and other expenses), the new guidelines don’t amend the ratio. “There’s legislation contemplating changing that, but so far that’s how all these borrowers should be doing those numbers,” notes Logsdon.

With much of the application being a math- and calculations-based form, those without the funds to hire someone to help might be in a tough spot: “A mom-and-pop shop needs to be able to fill out this application, and if lawyers are struggling to interpret some of these provisions and how to calculate things, how do you expect Mr. and Mrs. Smith to do it?” asks Holland.

And while many hoped the time limit to spend funds would be extended, the new PPP forgiveness application does not do away with the eight-week time frame to spend the money. For many of McDevitt’s clients, including hotels, restaurants, and health care companies, the length of the shutdowns prompts new questions into the eight-week period: “It’s not structured correctly to really protect them,” he says. They need a “longer runway, longer than eight weeks.”

Changes ahead?

Lawmakers and officials are expected to make changes to address some of these problems following calls to ease the eight-week time limit to spend funds. Treasury Secretary Steven Mnuchin said in a televised interview last week that they would make “technical fixes” to address lingering issues, while President Trump said on Monday that extending the time frame from eight to 24 weeks to use funds “should be easy.”

For many businesses, the 75% payroll limit and the eight-week period have become unhelpful as many are unable to open or rehire employees.

“When we conceived the program, we thought businesses would be able to get up and running after eight weeks, but we know now that’s not the case,” Democratic Sen. Ben Cardin of Maryland, who is on the small-business panel, said in a statement.

Sen. Marco Rubio said in a video on his Twitter, “For those asking about whether the time is going to be extended, we have the votes to do that.”

But, you guessed it, it’s unclear exactly when, or how, these changes will take form.

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