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How to Help Clients Simplify an Over-Complicated PPP Process

Are your clients confused about how to receive loan payments and forgiveness under the Paycheck Protection Program? They are not alone.

Jun 23rd 2020
Director BPM LLP
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Even with the deadline of June 30 for PPP loan applications fast approaching, small- and medium-sized businesses have been slow to take up the second round of funding made available to them by Congress.

The New York Times reports that as of June 10, there was still $130 billion left in PPP coffers. Even if demand does tick up as we approach the June 30 deadline, businesses are likely to leave significant amounts of PPP funding on the table.

This lack of interest in the program signals ongoing confusion — an unsurprising state of affairs, given the roll-out problems the program has had. After the initial $349 billion was completely allocated within days of becoming available — leaving many small business applicants feeling forgotten — many business leaders likely lost faith in the program. Others were turned off by the strict rules and burdensome reporting requirements written into the CARES Act.

Congress, in a rare show of bipartisan unity, earlier this month passed significant follow-up legislation, the PPP Flexibility Act (PPPFA), to address these concerns. Major changes include decreasing the amount borrowers are required to spend on payroll from 75 percent to 60 percent, increasing the period during which borrowers can spend the money from eight weeks to 24 weeks, and extending the deadline to rehire employees and restore salaries from June 30 to December 31.

Additionally, last week the Small Business Administration released a new, streamlined PPP forgiveness application, dubbed “Loan Forgiveness Application Form EZ,” which requires fewer complex calculations and less documentation. The streamlined application is available to freelancers, sole proprietors and other self-employed individuals, as well as — crucially — small businesses that are not subject to any loan forgiveness reduction due to salary or full-time equivalent employee reductions.

And on top of all that, the SBA clarified earlier this month that even borrowers who do not meet the requirement that 60 percent of the loan be spent on payroll can still receive partial forgiveness, as long as at least 60 percent of the amount for which the borrower applies for forgiveness was spent on payroll.

With this latest information, we now have a much better idea of what the SBA will actually require of businesses to have their loans forgiven. However, not everything has been finalized and additional guidance should be expected.

Regardless of what happens, we can say with confidence that there are certain steps all businesses can take now to make getting their loans forgiven easier down the road. To that end, here are three things accountants can help their clients do now to simplify the PPP forgiveness process:

1. Understand the Nature of the Loan

This is something a lot of frustrated business owners are overlooking. Accountants can help their clients by clarifying the nature of the loan and by presenting alternatives that fit their economic needs. Remember the purpose of these loans is, as the name of the program suggests, primarily to keep Americans employed for a finite time. PPP loans provide enough funding for businesses to do that — but not much more.

Even with businesses now able to put 40 percent of their forgivable amounts toward certain non-payroll expenses, including rent, mortgages and utility payments, this merely allows borrowers to keep their businesses solvent for in the very short term.  In other words, PPP grants are not a tool for longer term financing needs.

For many businesses, the effects of the coronavirus have run far deeper than just forcing them to close shop for a few months. Some of these companies operate on business models that no longer work in the post-COVID world, and will need to fundamentally re-engineer aspects of their organization if they are to remain viable, or else face closure or bankruptcy. To do that, they will need capital — something PPP grants cannot supply.

There are a range of options for these businesses: They can issue new equity. They can apply (as of June 15) for Economic Injury Disaster Loans or they can seek to borrow additional funds. With regard to the latter option, for businesses unable to have the amount they borrowed under PPP not completely forgiven, the balance remains as a loan with a highly favorable 1 percent interest rate.

2. Stay Up-to-Date With Current Information

Information regarding PPP changes so fast that if you do not keep up, you are bound to miss out on something important. When the program was first announced and funds opened up, for instance, we knew little about how forgiveness would work and what businesses would need to document. That, naturally, made accounting and finance professionals nervous.

Since then, however, information has trickled out — a lot of it, to be sure, conflicting with previous guidance. The biggest change to the program thus far, the PPP Forgiveness Act, came only earlier this month.

These changes go far deeper than what one gets from only paying attention to the headlines (the extension to the covered period, the reduction in the amount required, etc.). For instance, businesses that were unable to rehire employees are in certain cases now exempt from the reductions in the forgivable amount normally applied to businesses that fail to maintain their full-time employee count.

But you would only know that from digging into the passage of the PPPFA. As such, it is possible for an accountant to be operating off of the best, most recent guidance from just a couple of weeks ago — and for that information to also be completely wrong.

The lesson here is if your client is a PPP loan borrower and you want to ensure they receive as much of their loan forgiven as possible, you must devote a chunk of time every day to reading the latest information from the SBA as well as following business and financial news from your publication of choice.

3. Streamline Documentation and Record-Keeping

There has been a lot made of the SBA’s decision to review every single PPP loan above $2 million. Ditto for the body’s creation of a “safe harbor” for loans less than $2 million, by which these smaller loans will be assumed to have made the certification for the need of relief in good faith (as the PPP loan application requires of the applicant).

However, not just businesses that took a $2 million or higher loan, but also publicly-traded and venture-backed companies, should be prepared for aggressive review of their forgiveness applications by the Treasury.

Despite the focus on these loans smaller borrowers are not entirely off the hook. Far from it, the SBA has declared that it may undertake a review of any loan, at any time. Furthermore, while most businesses are unlikely to have their loan audited by the SBA, they will certainly have their loans reviewed by the bank from which they borrowed.

The upshot is that all PPP borrowers must be rigorous with their documentation and record-keeping to avoid penalties and to ensure they get the maximum amount forgiven. What types of documentation are required?

Any and all receipts, invoices, expense reports, payroll records and other records related to the payroll and non-payroll expenses a business hopes to have forgiven. If your client’s business received more than $2 million in PPP loans, it is also important that you hold onto reports like financial forecasts, revenue comparisons, cash runway projections, billing analyses and anything else than can help them demonstrate they made the certification that the business needed the loan in good faith.

Moreover, all of these documents should be kept digitally in a cloud or other secure electronic file boxes. While the SBA, being a government entity, might be more amenable to paperwork, banks in particular are going to want to all of your client’s records to be digital.

Finally, to ensure all these records are saved correctly in each and every instance, accountants should design and implement a simple, secure process for funneling relevant documents into the digital file box. They should also thoroughly train any members of their client’s staff who work with these kinds of documents in this process.

It may help to explain to any staff not familiar with PPP that this record-keeping is not just busywork and that significant amounts of funding for the business could be directly at stake as a result of their actions.

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