Some Important Reminders and PPP Loan Updates for October 2020
It has been a while since we’ve discussed the SBA Loan programs and mentioned PPP, but it is time to put it back on the radar of the small business world. We recently held a training with the team at Accountfully to review a few of the changes surrounding these loans to better serve our clients. We figured those trying to navigate these loans on their own would appreciate the bullet points from our training too. Let’s dive back in to the latest PPP pointers, so you can take advantage of loan forgiveness to the best of your ability.
But First, A Disclaimer
While these are the latest updates as of this week, we should mention a very special disclaimer: Congress and the SBA can make changes to this process, the rules, law, forgiveness, etc. at any point, so changes to this process could exist in the coming weeks and months. It will be up to you to stay informed if there are new updates, and we will do our best to inform our clients and followers similarly.
Now that we back to the latest and the important stuff for you to focus on as of this week...
It’s Analysis and Game Plan Time
The majority of businesses received their funding in April or May of 2020, which means many businesses are at the end of, or getting closer to the end of the 24 week covered period - the time you spent covering the basics to keep operations afloat. Congress extended this covered period from 8 weeks to 24 weeks, allowing for a good amount of time to figure things out. However, as we enter the end of this time frame, it’s time to do an analysis of that covered period and start thinking of how things need to play out before the end of the year. With this proper planning and analyzing in place, you can ensure you get the most out of the loan forgiveness opportunities available.
If you had to reduce headcount or wages, this is a major player in your loan forgiveness. According to the safe harbor provisions put in place, you have until December 31st to get that headcount back up, or increase wages again. The wage reduction was 25% or greater, so we could be talking big cash decisions, depending on the amount you cut. You will also need to ensure and track money spent on things like payroll, mortgage interest, rent, utilities, and items to keep the doors open and lights on while COVID-19 shut business down.
We are at the end of October, so you still have a reasonable amount of time to implement areas that help you meet the Safe Harbor guidelines.
The good news is that you have 10 months from the end of the covered period to send in your application and that there are new, easier applications available to use. There are now three loan forgiveness applications total; two of which are designated as “easy”:
- The original, lengthy one with all of its associated worksheets required
- An easy application for businesses that required $50,000 in funding and up, but didn't need to reduce wages or headcount
- An easy application for businesses that received below $50,000 or under
The easy applications require about two pages of basic information and checkboxes, that ask you to certify you used the funds for the proper expenses to keep your business afloat during the COVID struggles. These are similar to tax forms, where you will review and sign each. Just like your taxes, you will still need to ensure you have all of the backing documents in the event of an audit. The bank will require the documentation as well
Timeliness of Application Processing
Keep in mind that this major undertaking will have some lag time associated with it. There are bound to be a lot of applications streaming in. Your bank will have 60 days to review everything before they need to sign off, for starters. After the application hits the SBA, they have 90 days to approve items. So, as they say, “don't hold your breath.” What you can do, is ensure that you have given yourself enough time to prepare for changes that could affect your loan forgiveness amount. You can also take this time to make sure you have all of your receipts and business number ducks in a row, in case anything is questionable to the bank or SBA.
Once you have an idea of how your loan shakes out, here are the terms and conditions you will need to know and plan for. Firstly, it is a 1% interest rate on the amount of the loan that is NOT forgiven. If you received $100k, and $90k was forgiven, you are now on the hook for a $10,000 loan at 1% interest. Here are some important notes regarding deferring payment, interest amounts, and loan terms:
- You have the option to defer payments for up to 10 months, but you will still be accruing interest for those months
- Loans processed after June 5th, 2020 mature in five years
- Loans processed before June 5th, 2020 are two year loans
What to Focus On Now
Consider this your official reminder that it is time to review and plan for your SBA loan forgiveness application. You will need to evaluate your business situation from a financial perspective to see what you need to raise wages and reinstate jobs by the end of December, as well as collect and document everything needed to back up your original loan application. You will also need to consider what cash is required to repay any unforgiven portions of your loan.
By giving your business enough time to take the proper steps, you can nail this complicated process by ensuring you take advantage of the most loan forgiveness available and by strategically reinstating any reduction in employee count and/or wages.
With holidays looming, a lot of businesses will already be in a cash challenge to cover the restock of inventory, hiring temporary workers, and holding company events. Businesses are going to be busy and a lot of this important planning could easily be lost in the shuffle. Do yourself a favor and start tackling the hard stuff now.
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