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SBA, Treasury Unveil Simplified PPP Forgiveness

Thursday, October 22, 2020

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At the beginning of the month the United States Small Business Administration, in consultation with the Treasury Department, released a simpler loan forgiveness application for Paycheck Protection Program loans amounting to $50,000 or less.

The new form arrives as an effort to ease the burden for lenders and small businesses. Approximately $62 billion of the $525 billion in PPP loans that have been issued total $50,000 or less.

PPP Loans

In wake of the COVID-19 pandemic, in April, the Small Business Administration released an interim final rule for the PPP, stating that to qualify, businesses must have 500 or fewer employees and fall below the agency’s small business size standards.

The standard in question revolves around small size standards (as defined in section 3 of the Small Business Act, 15 U.S.C. 632). For construction businesses, this is generally determined by an average annual income threshold, not a number of employees threshold.

JTSorrell / Getty Images

At the beginning of the month the United States Small Business Administration, in consultation with the Treasury Department, released a simpler loan forgiveness application for Paycheck Protection Program loans amounting to $50,000 or less.

The PPP officially opened on April 3.

By the end of the month, the SBA found that the first round of PPP reportedly saw the most money divvied out to the construction industry. The program allowed for a cap of $349 billion in loans to be given to small firms that qualified during the COVID-19 pandemic. The money ran out April 16.

The numbers indicate that the construction industry received 177,905 loan approvals, totaling about $45 billion and amounting to 13.12% of all loans—the majority when divided up into subsectors.

The remaining top 10 industries include:

  • Professional, Scientific and Technical Services - 12.65%;
  • Manufacturing – 11.96%;
  • Healthcare and Social Assistance – 11.65%;
  • Accommodation and Food Services – 8.91%;
  • Retail Trade – 8.59%;
  • Wholesale Trade – 5.69%;
  • Other Services (except Public Administration) – 5.17%;
  • Administrative and Support and Waste Management and Remediation Services – 4.47%; and
  • Real Estate and Rental and Leasing – 3.14%.

By the middle of May, the SBA released an 11-page application for lenders and small businesses to apply for PPP loan forgiveness. However, in June, the U.S. Senate unanimously approved a bill updating the PPP terms. H.R. 7010, or the “Paycheck Protection Program Flexibility Act of 2020,” included changes such as:

  • An extended cover period of the PPP loans from eight weeks to 24 weeks;
  • A change in the forgiveness requirement from 75% of payroll costs to 60% of payroll costs;
  • A space for employers to make a good fair effort to hire or rehire;
  • An extended maturity of the PPP loans from two to five years; and
  • An opportunity for loan recipients to defer payroll taxes through the end of 2020.

In addition to the changes in the amendment, the government issued an updated an FAQ at the end of May dealing with the differences of loans above and below $2 million.

In previous guidance, the Treasury Department had said that all PPP loans of $2 million or more (upon an application of forgiveness) would be audited with the possible implication of investigation and penalty enforcement.

However, the recent clarification states not only that would loans less than $2 million be “automatically deemed” to have acted in good faith, but that while loans at and above $2 million would still be reviewed, the party would be required to pay back the loan without penalty of enforcement action.

And last month, PaintSquare Daily News reported that businesses that received PPP loans during the pandemic could experience higher tax revenues. The concern arrived after the Internal Revenue Service ruled that businesses couldn’t write off tax reductions for wages and rent paid using the forgivable PPP loans as to prevent a “double tax benefit.”

According to the U.S. Chamber of Commerce, PPP loans can be forgiven as long as at least 60% of the funding was spent on employee payroll cost, while the other 40% should have been used for mortgage interest, rent and utility payments. Additionally, forgiveness is also based on an employers’ continuance to pay employees at normal levels over 24 weeks following the origination of the loan.

To apply for forgiveness, businesses who received a loan will have to file a PPP Loan Forgiveness Application with the Treasury Department through the private lender they obtained the loan from.

If the PPP is deemed forgiven, then the loan is tax-exempt. However, as aforementioned, the exemptions can in turn reduce the amount a business writes off on its taxes, meaning the company could owe more taxes than compared to previous years.

Although, through the PPP Flexibility Act, employers can defer these taxes even after the PPP loan has been forgiven. If deferred, employers are required to pay 50% of the deferred taxes that accumulated in 2020 by Dec. 31, 2021, and the other 50% of the deferred amount would have to be paid by Dec. 31, 2022.

Updating the PPP Forgiveness Process

In an action to streamline the PPP forgiveness process, which provides financial and administrative relief to America’s smallest businesses while also ensuring sound stewardship of taxpayer dollars, the SBA has since reduced its 11-page application to a two-page form.

“The PPP has provided 5.2 million loans worth $525 billion to American small businesses, providing critical economic relief and supporting more than 51 million jobs,” said Secretary Steven T. Mnuchin. “We are committed to making the PPP forgiveness process as simple as possible while also protecting against fraud and misuse of funds.  We continue to favor additional legislation to further simplify the forgiveness process.”

Not only will the simplified PPP forgiveness process ease the burden on small businesses, but the SBA and Treasury report that the burden is also reduced for PPP lenders, allowing them to process forgiveness applications more swiftly.

“Nothing will stop the Trump Administration from supporting great American businesses and our great American workers,” said Administrator Jovita Carranza at the time of the announcement. “The Paycheck Protection Program has been an overwhelming success and served as a historic lifeline to America’s hurting small businesses and tens of millions of workers. The new form introduced today demonstrates our relentless commitment to using every tool in our toolbelt to help small businesses and the banks that have participated in this program. We are continuing to ensure that small businesses are supported as they recover.”

However, while the streamlined forgiveness will affect 3.57 million of the 5.2 million loans originated under the program, some trade groups are calling for further action from Congress.

Of the groups, Independent Community Bankers of America President and CEO Rebeca Romero Rainey reiterated her organization's request for a higher automatic forgiveness threshold of $150,000 or less, with Consumer Bankers Association and Bank Policy Institute mirroring the request over the summer.

"This threshold would account for 85% of total PPP recipients, but less than 26% of PPP loan dollars," the groups wrote.

SBA began approving PPP forgiveness applications and remitting forgiveness payments to PPP lenders for PPP borrowers on Oct. 2. SBA reports that it will continue to process all PPP forgiveness applications in an expeditious manner.

View all of PaintSquare Daily News' coverage of COVID-19, here.

   

Tagged categories: Business management; Business matters; Business operations; COVID-19; Economic stimulus; Funding; NA; North America; Program/Project Management; Project Management

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