Preparing for PPP Loan Forgiveness
Businesses that have secured a loan through the PPP should already begin preparing and arranging for the information that they will eventually need to apply for forgiveness of that loan following the end of the eight-week, post-loan closing period. A formal application is yet to be released by the Small Business Administration (SBA).
Information in support of loan forgiveness includes:
(1) documentation verifying the number of full-time equivalent employees on payroll and their pay rates, along with the associated federal and state income tax, employment tax, and unemployment insurance filings;
(2) documentation supporting other covered expenses (mortgage, interest, rent, and utilities), such as canceled checks, payment receipts, account statements, and invoices; and
(3) certification from a company representative that the documentation presented is true and correct, and that the amount for which forgiveness is requested was used to retain employees and make payments on covered expenses.
The SBA may demand additional information, either through anticipated regulations or on an ad hoc basis. Notably, the CARES Act prohibited those businesses intending to file for loan forgiveness from deferring payment on their half of the Social Security tax due under their payroll, beginning on March 27, 2020.
However, the IRS recently provided that applicants for (and recipients of) PPP loans may also defer these tax payments through the date that their application for loan forgiveness is approved. The amount deferred through that date will be due at least fifty percent due by December 31, 2021, and the balance will be due by December 31, 2022.
Businesses should have a process in place for the eight weeks after a PPP loan is secured to separately store and collate the relevant documents in anticipation of a loan forgiveness application, and should also, to the extent practicable, maintain a separate bank account for PPP proceeds in order to more easily track their utilization.
As always, if you have any questions, please feel free to contact your MSPC partner or the CARES TASK FORCE.