This has been a busy week for business owners applying for the loans and grants in the wake of COVID-19 shutdowns. For purposes of the Paycheck Protection Program (PPP) loan and how it's calculated there has been a lot of discussions around how to properly document your financial need. Recently, the SBA has come out to clarify many of the sources of confusion. Now that we have been given that clarity, we are going back and giving those applications a closer look.
For purposes of the PPP loan and how it's calculated, the SBA has come out and clarified a lot of different points. And so we now have more information than we had to begin with--which is shedding some light on early applications and helping to guide how we handle financial information.
For a lot of people who were first out of the gate and did their applications early may have used an estimate that might not be validated when they go for loan forgiveness. So what we're doing on our end is we're trying to make sure that we are counting appropriately for the cost that should have been submitted as the application amount, making sure that we are reporting that appropriately.
We're letting the clients know as their loan balance is being depleted against those expenses that were actually allowed so that they understand and have a real time reference on what might be forgiven and what their exposure may be if it's not going to be forgiven. Including if they've applied for the wrong amount and they've got to back up and do something different.
We're helping them with that planning. Should they prepay their rent? Is there something else they can include? Do they have other payments that they can make related to payroll? So we're really trying to facilitate that debt forgiveness piece as opposed to some of the applications that have already been submitted.
According to Jeff Drew at the Journal of Accountancy, here is how the latest clarifications are impacting small businesses who have applied to the Program:
The CARES Act permits the PPP’s forgivable loans to pay for up to eight weeks of payroll costs, including benefits and other costs. In addition to payroll, recipients also can use PPP funds to pay interest on mortgages, rent, and utilities.
Small businesses applying for PPP loans must submit documentation, such as but not limited to payroll processor records or payroll tax filings, that establishes their eligibility for the loans. The interim final rule issued Thursday clarified that the SBA will allow lenders to rely on the borrower’s documentation to determine if the borrower is eligible for the loans. Lenders can accept e-signatures and e-consents. Lenders who comply with the obligations laid out in the interim final rule will not be held responsible if the borrower submits fraudulent or inaccurate information.
(Editor’s note: On April 6, the SBA posted an FAQ document for the Paycheck Protection Program. That information is available here.)
Those who were first in line to fill out the Program loan may have used an estimate that may not be validated when reviewing their expenses for the loan forgiveness.
We are working with our clients to gather appropriate accounting now that the clarifications have been made to the PPP. And now that we have stricter guides with respect to what should have been submitted as the application amount we are making sure we're recording expenditures appropriately and that records are updated. Our goal is to have our clients following in real-time and to be able to give a reference of expenses versus loan depletion.
If the wrong amount was given, we're helping them plan for that and if there is something else they can include or do they need to back up and do something different? We are here to assist our clients through these ever-changing tides. We are all in this together and ready to get our team to work alongside yours!
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