The U.S. Small Business Administration and the Treasury Department are making it easier for companies to get their Paycheck Protection Program loans of $50,000 or less forgiven with a simpler loan forgiveness application and interim final rule.
The new application form and rule were unveiled Thursday night, along with instructions for completing the form.
Doug Duncan is the chief economist at Fannie Mae.
Allan Koltin, CPA, CGMA, is the CEO of Koltin Consulting Group, a Chicago-based consulting firm that specializes in working with professional and financial services firms in the areas of practice growth, practice management, human capital, and mergers and acquisitions. A nationally recognized speaker and industry analyst, Allan has appeared on the CNN, WGN and Fox Television networks and has been quoted frequently in such media as the Wall Street Journal, New York Times, Washington Post, Chicago Tribune, Los Angeles Times, USA Today and New York Post, as well as Bloomberg News, BBC World Service, Business Week, Forbes and Reuters. He has also spoken nationally and internationally at hundreds of conferences including those held by the AICPA, international CPA associations and state CPA societies.For twelve consecutive years, Allan has been named by Accounting Today as one of the Top 100 Most Influential People in the accounting profession. Koltin was also voted one of the 10 Most Recommended Consultants, for the seventh straight year, in the “Annual Survey of Firms” conducted by INSIDE Public Accounting. In 2012, Allan was named by CPA Practice Advisor as one of the Top 25 Thought Leaders in the profession. He was one of the first inducted into the Accounting Marketing Hall of Fame by the Association for Accounting Marketing (AAM). He has also been a recipient of the NACVA Instructor of the Year Award and winner of the Journal of Accountancy Literacy Award. Previously he was recognized by the Illinois CPA Society with the Distinguished Service Award for outstanding service and commitment to the profession. Koltin is the author-editor of three books for professional services firms: CPA Firm Merger Strategies That Work, CPAs That Sell and the AICPA’s Marketing a Consulting Niche. He is a founding member of The Advisory Board, a think tank for the accounting profession, and has served on various advisory boards, including Outsource Partners International (OPI), the Association for Accounting Marketing (AAM), the National Association of Certified Valuation Analysts (NACVA) and H&R Block (HRB Business Services). Previously, Allan was the President and CEO of PDI, Global, Inc. which was the largest publisher of marketing newsletters for professional services firms. Allan originally sold PDI Global to H&R Block in 1998, buying it back in 2008, and then selling it again to Thomson Reuters in 2011. Prior to that, Allan was a Senior Partner in the Chicago-based accounting and consulting firm of FERS, where he served as the leader of the Investment Banking Group, as well as the Law Firm Consulting Group. At age 27, Allan had the distinction of being named the youngest partner in the history of the firm and was also a member of the firm’s Executive Committee. FERS was acquired by H&R Block in 1998. Allan attended both the University of Wisconsin – Madison and the University of Wisconsin – Milwaukee and received degrees in accounting and marketing. He lives in Chicago with his wife, Sharon, and his three children, Jack, Brian and Julia. His passion is facilitating retreats and providing coaching for firm leadership and partners. His specialties include strategy, governance, profitability, compensation, growth, human capital, and mergers and acquisitions.
Kate Risch Choi is a senior product manager for treasury and payment solutions at BMO Harris Bank.
The PPP was part of the CARES Act passed by Congress in March to provide relief to struggling small businesses coping with the impact of the novel coronavirus and the economic downturn precipitated by the pandemic. It offered SBA-backed loans that could be forgiven as long as the business met conditions such as retaining employees for eight weeks. However, many businesses have been confused about the ever-changing rules for the hastily rolled out program and for getting their loans forgiven. Until a week ago, no loan forgiveness applications were being approved by the SBA. The SBA and the Treasury hope the new application will make the process a little less difficult for business owners, at least for the many who took out loans of $50,000 or less.
Under the new rule, PPP borrowers of $50,000 or less won’t have the amount of their loan forgiveness reduced based on reductions in full-time-equivalent employees or reductions in employee salary or wages. The newly simplified forgiveness application, Form 3508S, can be used by borrowers with a total loan amount of $50,000 or less, unless they and their affiliates received loans totaling $2 million or more.
“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 Treasury Secretary Steven T. Mnuchin in a statement Thursday. “Today’s action streamlines the forgiveness process for PPP borrowers with loans of $50,000 or less and thousands of PPP lenders who worked around the clock to process loans quickly,” he continued. “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.”
The SBA started approving PPP forgiveness applications and remitting forgiveness payments to PPP lenders for PPP borrowers on Oct. 2. The SBA said it plans to continue to process all PPP forgiveness applications in an “expeditious manner.”
“Nothing will stop the Trump Administration from supporting great American businesses and our great American workers,” said SBA administrator Jovita Carranza in a statement Thursday. “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.”
Many accountants have been helping their small business clients apply for PPP loans and fill out the loan forgiveness applications. Heather Bain, chair of the Small Business Committee of the Institute of Management Accountants and owner of Bain CPA Business Strategies in Houston, believes the new rule issued by the SBA on Thursday doesn’t go far enough, though, in simplifying the process.
“There weren’t really that many changes,” she said. “In fact the whole rule only reduced the complexities for calculating full-time equivalents and the reduction in wages. That’s it. The rule even says that doesn’t really apply to the majority of those loans that were under $50,000. That’s why they’re allowed under the de minimis rule in the first place. I don’t think we’re going to see that many businesses benefit from that rule. And what most of my clients and companies that I work with have said is that they were hoping for an automatic forgiveness where you don’t have to wait to find out for sure if you are going to get forgiveness, and that was not part of the interim final rule.”
The new rule may well disappoint many small business clients. “They were hoping for a certain loan amount and the forgiveness would just be automatic,” said Bain. “There wouldn’t be a lender decision and an SBA decision. It would just be if you signed your affidavit and completed it and turned it in, you would have automatic forgiveness. But that apparently is not part of any of the discussion with the new interim final rule.”
The changes are estimated to cover approximately 9 million forgiveness applications. “It was a fairly small statistic because many of the loans that are $50,000 or less were partnerships or self-employed or they didn’t have employees or had so few employees that they didn’t have the full-time equivalent [employee] reduction,” said Bain. “They didn’t have the calculation for reduction of wages or any of that. It only applies to those two issues. It doesn’t guarantee forgiveness. It still requires that the borrower provide additional information to the lender, certify how it’s reviewed, and calculate the payroll and non-payroll costs and all of those. All of the other rules still apply.”
The PPP loan application deadline ended on Aug. 8 with over $130 billion left unspent from the funds allocated to the program. House Speaker Nancy Pelosi, D-California, is continuing to negotiate with Mnuchin about reviving the program as part of a larger stimulus package, but Democrats and Republicans remain at odds over the size of the package and whether it should be piecemeal or be an all-encompassing package with relief for airlines, state and local governments, and offer another round of stimulus payments for individuals. However, demand for PPP loans from small businesses appeared to be flagging well before the deadline expired.
“They’re not really interested,” said Bain. “Most of the companies that I work with have mentioned that they’ve already taken the loan if they’re going to take the loan. That’s why there are funds left over. Because there is some exclusivity between being allowed to take certain payroll tax credits and applying for the loan, if they’ve already taken the credits, then they wouldn’t be eligible for the loan. So they’re not going to apply for the loan.”
To help small businesses cope with the recession, she recommends that accountants provide cash flow projections for them. “There are several procedures that companies go through when they’re in receivership,” said Bain. “One of them is the 13-week cash flow and those sorts of reports. That’s what I would recommend businesses look at is analyzing the business as if it were under receivership, and paying close attention to the cash flow and the forecasting from now until the end of 2020 so that they can make very high-quality decisions about how to spend their funds. And talk to a tax accountant about the tax deferrals and the estimated tax payments because the rule is either 100 percent of the tax from last year, which is probably an overestimate for most businesses this year, or 90 percent of this year. So if they’re making a 90 percent deposit for this year, many of the businesses will be OK as long as they do their very best at projecting their income. Especially for the companies that only have a $50,000 or less loan, if those expenses are not ever deemed to be deductible, then they still may have a little bit of wiggle room, depending on how much their revenue actually is.”
Businesses may also be able to take advantage of the net operating loss tax breaks in the CARES Act, which allow losses to be carried back five years.
“That is one of the big changes,” said Bain. “Now they can go back farther than before and so there will be a lot more amended returns once the losses are calculated for 2020 and even into 2021. There are many forecasts saying the market won’t recover until 2022, so 2021 will possibly be a net operating loss for many companies as well. That’s why cash flow management is so important because they may have paper losses because of depreciation and other deductions that are not cash deductions. That may help them significantly with their cash flow.”
The National Association for the Self-Employed welcomed the new SBA loan forgiveness changes. “The announcement by the Administration of a simplified process of loan forgiveness for small businesses who accessed $50,000 and less in PPP loans is an incredibly welcome sign,” said NASE president and CEO Keith Hall in a statement Friday. “We are thrilled about this new SBA and Treasury interim guidance to help small businesses during a time many of them are looking at the last quarter of estimated tax payments and year-end accounting. This newly announced guidance is a welcome step, but it can’t be the last step this year to help the American small business community who are desperate for critical relief now. Therefore, it’s imperative the Administration and Congress come back to the negotiating table and work together to provide the immediate financial relief for the American people and our nation’s small business community.”
