Is Interest On Unsecured Credit Eligible For Loan Forgiveness
As of August 4, 2020, in Frequently Asked Questions on PPP Loan Forgiveness, the SBA stated, no. Payments of interest on business mortgages on real or personal property are eligible for loan forgiveness. Interest on unsecured credit is not eligible for loan forgiveness because the loan is not secured by real or personal property. Although interest on unsecured credit incurred before February 15, 2020 is a permissible use of PPP loan proceeds, this expense is not eligible for forgiveness.
There May Be More Time To Apply For Second Draw Loans
The additional two months may also open the door for small businesses that got a first PPP loan this year to apply for a second one.
Some small businesses that recently got a first draw previously didn’t have enough time to apply for a second one, as generally eight weeks must pass between the loans so there’s time to spend the money on payroll.
This mostly impacted sole proprietors that didn’t know they qualified for assistance through the program or weren’t able to get funding in the previous round.
“They’re certainly going to be a big beneficiary of this added time on the application process,” said Patrick Ryan, president and CEO of First Bank.
Of course, there are extra qualifications for a second draw loan beyond the eight-week time period. Small businesses must have no more than 300 employees and be able to show at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020, according to the SBA.
What If I Reduced My Staff Or Their Pay How Will This Affect My Loan Forgiveness
Your loan forgiveness amount is based on how you use loan funds. If you terminated, laid off, furloughed employees, or reduced their wages by more than 25%, your forgiveness amount will be reduced.
There are three safe harbors available. If any of the following situations apply to you, you can disregard the corresponding wage or FTE employee reductions that may lower your loan forgiveness amount.
In addition, your loan forgiveness amount wont be reduced if you:
- Offered to restore employee hours at the same salary or wages, even if the employee doesnt accept
- Fired an employee for cause, or the employee voluntarily resigns or requests a schedule reduction
- Have a PPP loan of $50,000 or less
You should maintain written documentation of these situations. If you offer to rehire an employee and he or she refuses, you need to notify your states unemployment office of this rejection within 30 days.
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Do I Still Need To Restore Payroll Or Headcount To Previous Levels In Order To Receive Forgiveness If I Get First Ppp Loan After December 27 2020
No. PPP Loans received after December 27th, 2020 are not required to rehire any employees in order to receive forgiveness. You will, however, need to maintain current payroll levels during the forgiveness period. .
If youve kept those requirements for the 8 weeks after you received your PPP loan, at that point you may apply for loan forgiveness through the lender that serviced your loan.
In order to request any amount of forgiveness on your loan, you will need to verify that your loan was used for the required expenses, which means youll need documented proof.
How Do I Get My Ppp Loan Forgiven
In order to have your loan forgiven, you must fill out a PPP loan forgiveness application. This form must be submitted to either the bank or lender that approved your initial PPP loan request and provided you with the funds.
If your business fails to submit a PPP loan forgiveness application, you will not receive loan forgiveness. Businesses must apply for PPP loan forgiveness within 10 months after the conclusion of their covered period. Again, failure to do so within the time frame will result in your business being ineligible for any forgiveness.
The form itself includes a step-by-step guide to calculating out your loan forgiveness eligibility, including PPP Schedule A, which enables employers to calculate their total payroll and compensation costs. The SBA has stated that it plans to release a modified PPP loan forgiveness application on Monday, June 15, 2020.
You should be preparing to fill out the PPP loan forgiveness application throughout the duration of your coverage period. This means that you should keep a detailed payroll report, record all of your contributions to employee health insurance and retirement plans, save all bank statements, and document your employee rosters. You should also have matching documents for your pre-COVID-19 reference period, which will allow for comparisons to be made between the two periods to see if you business has fulfilled its obligations for loan forgiveness.
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When Does The Ppp Program End Deadline Extended To May 31 2021
In this 2-minute read:
- The deadline for PPP loan applications HAS BEEN EXTENDED to MAY 31, 2021
- Important updates have made it easier to meet full loan forgiveness
- Extensions on payroll and rehiring deadlines, and EXCEPTIONS for 2021
IMPORTANT UPDATE FOR 2021: Congress approved an extension of the PPP loan program until May 31, 2021, including second draw PPP loans for businesses that received PPP funding in 2020.
The PPP loan program as part of the CARES Act of 2020 was designed to provide emergency loans for Americas small businesses in crisis due to the coronavirus pandemic.
The initial PPP funding ran out, but the PPP program was re-funded for a second round of loan capital. The original application deadline for PPP loan applications was EXTENDED to MAY 31, 2021.
President Biden signed the PPP Extension Act of 2021 on March 30. This bill extended the PPP application window until the end of May, after which the SBA will not accept any new PPP applications, but only process those applications it has already received from lenders. However, the PPP program may be renewed, depending on Americas needs.
On June 5, 2020, President Trump signed into law new updates to PPP loan forgiveness requirements, extending the covered period to 24 weeks, reducing the minimum loan funding that must be spent on payroll to 60%, and easing the requirements for maintaining staffing and compensation levels. Please read the details here.
New Legislation Extends Previous Application Deadline
On March 30, 2021, President Biden extended the deadline to apply for a Paycheck Protection Program Loan by signing the aptly named Paycheck Protection Program Extension Act of 2021. This legislation extends the deadline to May 31, 2021, and gives the Small Business Administration an additional 30 days to process applications.
In January 2021, when Congress revived PPP funds as part of a $2.3 trillion coronavirus relief package signed in December 2020, an additional $285 billion became available for PPP loans, of which approximately $25 billion was allocated to second-draw loans. When the first program expired in August 2020, Congress had approximately $130 billion left in unused funds.
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Is Your Ppp Loan Forgiveness Deadline Fast Approaching
More than 30% of borrowers of Paycheck Protection Program loans in 2020 have not submitted for loan forgiveness. PPP loan borrowers may submit a loan forgiveness application any time before the loan maturity date. This maturity date would be either two or five years from the loan date depending on the borrowers loan agreement. If a PPP loan received a Small Business Administration loan number before June 5, 2020, the loan has a two-year maturity date unless the borrower and lender mutually agreed to extend the term of the loan to five years.
Payments of principal and interest on PPP loans are deferred for a period of time. The deferral ends 10 months after the last day of the covered period and is unique to each borrower. The covered period starts on the date the loan was funded and ends on a date chosen by the borrower of at least 8 weeks and not more than 24 weeks. The borrower must spend 60% or more on payroll, payroll taxes, and benefits with the remaining 40% on eligible operating expenses during the covered period. It is recommended to apply for loan forgiveness within the 10-month period to extend the deferral period. If you have a PPP loan received in 2020, the end of the deferral period may soon be approaching.
Dont hesitate apply for PPP loan forgiveness! If you have questions, please contact , Senior Tax Advisor, or , Director Integrated Services.
For more information about COVID-19 tax and business implications, visit this special section of our website.
Delayed Deduction Of Expenses Paid With Ppp Loan Proceeds
In an S corporation context, the problem is basis for the shareholder. Debt of the S corporation does not result in basis for a shareholder, as there is nothing like the partnership-related IRC §752 for S corporation equity holders. Thus, the S corporation shareholder only receives basis for the PPP proceeds when forgiveness is recognized.
However, the expenses paid with the PPP loan proceeds do reduce basis. So if we have a 100% shareholder that entered the year with no basis in his/her interest, the corporation receives a $250,000 PPP loan in 2020 and spends those funds in 2020, but does not recognize forgiveness until 2021, there can be a problem. If we assume the S corporation broke even except for the expenses paid with the PPP loan it becomes clear that there is going to be a one year delay in recognizing the deduction paid with PPP funds:
The shareholder has no basis at the end of 2020, so cannot deduct the $250,000 loss. Rather, the shareholder must wait until the tax exempt income is recognized by the S corporation in 2021 for his/her basis to be increased under IRC §1367 for the tax-exempt income in order to be able to claim the loss from the expenses paid with those funds.
The problem can also surface in a different wayif the shareholder or partner takes distributions in the PPP loan year, the distribution could be taxable due to lack of basis in S corporation stock or a reduction in the amount at risk for the partner.
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Some Lenders Still Have Different Rules Around Ppp
Many nonbank lenders and smaller fintech firms kept their application portals open and intended to do so through the program’s expiration date, while many larger banks had stopped taking new applicants to finish everything in time.
Now, those banks are reopening their windows to help some borrowers, yet some banks are following different rules.
This is definitely a win for the smallest of small businesses.Alex CohenCEO at Liberty SBF
For example, JP Morgan will resume taking applications for PPP loans and will update its loan calculation formula for sole proprietors or so-called Schedule C filers. The new application with the updated formula should be available for borrowers next week, a spokeswoman confirmed.
Previously, the bank only allowed sole proprietors to use net profit instead of gross income to calculate loan amounts, which will likely resulted in less money.
What Requirements Must My Business Satisfy In Order To Receive Loan Forgiveness
The biggest source of confusion with the PPP loans has been how they will be forgiven and what businesses will be eligible for forgiveness.
At this point in time, businesses should be aware of the following stipulations, which they must satisfy in order to receive loan forgiveness:
Businesses must maintain their existing full-time employees on their payroll without instituting a salary/hourly wage reduction of more than 25%. PPP funds cannot be used to meet payments for employees whose average annual salary is in excess of $100,000 of cash compensation.
Businesses must use at least 60% of the loan for payroll expenses .
Businesses can use the remaining 40% of funds for mortgage obligations, business rent, lease agreement obligations, and utilities, including electricity, gas, water, transportation, and Wi-Fi .
Funds eligible for forgiveness must be used during the covered period, which we will discuss later.
Non-payroll funds can now be used for personal protective equipment .
Treasury Secretary Steven Mnuchin has noted that the total amount of loan forgiveness does not have to be the entire loan, and even if businesses fail to meet some of these guidelines, they may still be eligible for partial loan forgiveness as long as at least 60% of the total amount of loan forgiveness went to payroll costs.
Whatever portion of your PPP loan that is not forgiven will become a regular loan with a 1% interest rate and a five year duration .
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Exceptions To Full Forgiveness Guidelines Contained In The Ppp Flexibility Act
Two new exceptions let borrowers achieve full forgiveness even if they don’t fully restore their workforce. These are in addition to previous guidance that lets companies exclude workers who turned down good-faith offers of reemployment. Borrowers can now also reduce workforce requirements based on the inability to find qualified employees or if they were unable to restore operations to Feb. 15, 2020, levels due to COVID-19 restrictions.
Changes made by the PPPFA have been fully incorporated into new loan forgiveness applications posted on the SBA website.
Are Amounts Attributable To The Business Operation Of A Tenant Or Sub
No. In an Interim Final Rule on Treatment of Owners and Forgiveness of Certain Nonpayroll Costs originally posted on August 24, 2020, the SBA has stated that the amount of loan forgiveness requested for nonpayroll costs may not include any amount attributable to the business operation of a tenant or sub-tenant of the PPP borrower or, for home-based businesses, household expenses. The IFR provides four examples:
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What Is The Loan Forgiveness Covered Period
Each borrower has a loan forgiveness covered period, which is the period of time during which youll need to use your loan funds if youre hoping to maximize your forgiveness amount.
Your loan forgiveness covered period generally begins on the date you received your PPP funds , and ends on a date selected by you between 8 to 24 weeks thereafter. You dont have to use all your loan proceeds during the loan forgiveness covered period, but only eligible costs paid during that period are eligible for forgiveness. Costs incurred after the loan forgiveness covered period wont be forgiven.
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More Information To Come
Weâll provide updates, guidance, and resources on our website and through email bulletins. For the latest information:
- Come back to this web page.
You may also email your questions to .
Advance Payments of Federal Child Tax CreditChanges to the federal Child Tax Credit mean that many families will get advance payments of the credit for 2021. Starting in July, the IRS pays half the total credit amount in monthly payments, and you claim the other half when you file your 2021 federal income tax return. For details, go to Advance Child Tax Credit Payments on the IRS website.
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Understanding The Paycheck Protection Program Flexibility Act Of 2020
Under previous PPP loan guidance, borrowers had eight weeks from the time they received the first loan installment to spend the funds. The PPP Flexibility Act of 2020 extends that period to 24 weeks. They also have the option to keep the original eight-week spending period if they already had their loan before the enactment of the act. Under the new timeline, full forgiveness is still possible.
The original PPP loan guidelines mandated that 75% of any forgiven amount had to be spent on payroll costs. The Flexibility Act reduces required payroll expenditures to 60% of the loan amount with up to 40% of the loan amount used for mortgage interest, rent, or utility payments to obtain full loan forgiveness of that amount.Or, part of the loan can be forgiven provided the borrower maintains the same 60/40 ratio for the amount forgiven. This change reflects complaints from many businesses that their payroll costs went down as employees were laid off but fixed costs such as rent did not.
Borrowers were able to use the new 24-week period to restore their workforce to pre-COVID-19 levels in order to obtain full forgiveness. The deadline under the Flexibility Act to achieve this was Dec. 31, 2020, as opposed to the previous deadline of June 30, 2020.
In January 2021, the PPPFA opened again, allowing businesses to take loans for the first time as well as a second draw for businesses that had previously taken a loan.
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