OVERVIEW: Paycheck Protection Program Loan Discount


Many business owners are unsure of whether to request a paycheck protection program (P3) loan forgiveness. Many questions and ambiguities related to forgiveness remain. Despite the publication of an 11-page application, complete with definitions and calculations, and the Small Business Administration (SBA) interim final loan cancellation rule, uncertainties are mounting.

Some of the problems and pitfalls of PPP forgiveness include:

  • Calculate the full-time equivalent hours (FTE) of a company for a large number of employees or in situations of high staff turnover;
  • Understand how to calculate FTE for employees who are not working for the full measurement period or period covered – due to state-imposed closures, start or end dates of employment in mid -period, sick leave, family and medical leave law (FMLA) leave, etc. ;
  • Identify all applicable FTE reduction exceptions and correctly calculate the appropriate FTE to claim these exceptions in Table 1 of the worksheet in Annex A;
  • Properly document support for all claimed FTE reduction exceptions; and
  • Confusion of ETP spreadsheet calculation because a company is unable to return to the same level of business activity as before February 15, 2020 – due to social distancing, remediation and other related safety requirements to COVID or guidelines from the Centers for Disease Control (CDC), Health and Human Services (HHS) or Occupational Safety and Health Administration (OSHA) issued between March 1, 2020 and December 31, 2020.

Congress designed PPP loans to support organizations facing economic hardships created by the coronavirus pandemic to help them continue to pay employee salaries. However, asking for a loan forgiveness is still very confusing. It will take a lot of time and accounting costs to properly prepare the pardon application, which may thwart the initial intentions of the P3 program.

Changing requirements for PPP forgiveness

Most taxpayers knew how to spend the loan money. Initially, it was 75% salary costs and 25% non-salary costs, including rent and utilities. These percentages have been updated with the second round of PPP at 60% and 40%, respectively. Additionally, the initial timeframe for spending the PPP money was eight weeks from the date a business received the loan. Now you can choose between eight weeks or 24 weeks to complete your forgiveness. The foundation continues to move.

Meanwhile, as banks accept forgiveness requests, a new bill is pending in the Senate that simplifies the forgiveness process for borrowers receiving PPP loans under $ 150,000. The bill proposes that the borrower need only submit a one-page form to the lender certifying that the recipient has complied with the P3 requirements and is eligible for a rebate. A decision on this bill is expected to be taken in the coming weeks.

Clarify guidelines on FTEs are still MIA

The biggest concern of most businesses today is getting reliable answers. “Will my loan be canceled and have I spent the money according to the schedule?” There is a lot of uncertainty. The biggest problem with forgiveness is what is considered a full time employee. This is the main factor in determining the amount of your loan that will be forgiven. The latest SBA guidelines released on August 4, 2020 said they would provide additional clarity on what is considered a full-time employee.

To date, this clarification has not been released. Many small businesses are eager to request a loan forgiveness from their CPAs and accountants, but questions like these make it difficult to apply accurately. When applying for a PPP loan, the calculations were based on the payroll amounts and the number of employees, but not on the number of hours worked by these employees.

Post-Covid restrictions hamper ETP calculations

Due to social distancing rules and state regulations on reopening businesses, many employers have not been able to rehire the same employees who worked full time before the Covid-19 restrictions. Their activity has been curtailed by these social distancing rules for both employees and customers.

Small businesses do not know if their P3 loans will be canceled, as many of them have been closed due to their state mandate. They applied for and received PPP funds, but were forced to pay their home workers because they were not allowed to work. So, because businesses were paying employees who were at home during the shutdown, trying to calculate FTEs became a very big concern for loan cancellation.

Uncertainties on the delivery of PPP loans

Food establishments and restaurants that were recently mandated by their states to maintain 50% capacity are struggling to hire all of their staff as demand is still not at full capacity. They do not know if they will have their loan canceled for the full amount when they only kept a portion of the employees they had, compared to their original payroll before the shutdown. This can be tedious for many as they couldn’t reopen immediately and are now limited to 50% of their capacity.

Many businesses were not allowed to open for a long time. These companies therefore kept the PPP loan because they were unable to reopen. How will loan forgiveness work in this scenario?

Another problem is the difficulty in completing the loan cancellation worksheet. Questions arise as to the conditions required for 100% of a PPP loan to be canceled. Canceling all loans under $ 150,000 would ease that burden on business owners and accountants.

Businesses are waiting. Final and final directives on salary expenses and additional expenses eligible for loan exemption must be issued. In particular, businesses need advice on requesting a rebate for loans issued over $ 150,000. Without this advice, even the best CPAs and accountants cannot help their business clients.

This column does not necessarily reflect the opinion of the Bureau of National Affairs, Inc. or its owners.

Author Info

Paul Miller of Miller & Co. LLP is a CPA and can be contacted at https://www.cpafirmnyc.com/.

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