There are 5 phases of PPP. Most businesses are somewhere in phase 2. There is a long road ahead with a lot of work left to be done and a lot of uncertainty. Companies that are truly relying on loan forgiveness for survival will be in real trouble if part or all of their loan isn’t forgiven.
Phase 1: apply for a loan and receive the funds. Most eligible companies that want a loan have already received one. If you haven’t yet, there is still time. The deadline was recently extended to August 8.
Phase 2: use the funds effectively and apply for loan forgiveness. Most companies that received money in April or May are coming to the end of the 8 week “covered period” with the option of extending the period to 24 weeks. At the end of your covered period, you can apply for loan forgiveness. If you are waiting for your IRS Form 941 to submit with your application, you will be able to file in July; or if you’re taking the 24 weeks, then you will be able to file in January 2021.
Phase 3: your bank and the SBA will review the forgiveness application. They can take up to 5 months to do so. It remains to be seen how long this process actually takes and what the success rate will look like. Companies that are truly relying on loan forgiveness for survival will be in real trouble if part or all of their loan isn’t forgiven.
Phase 4: taxability of loan forgiveness amounts. As I mentioned in another article, the income from the loan forgiveness is tax free (good) but the expenses that are paid from the forgiven loan are not tax deductible (bad). Talk with your CPA on when/how you should report the non-tax-deductibility of these expenses. You may have a tax bill due sooner than expected. Again, companies that are truly relying on loan forgiveness for survival will be in real trouble if Congress doesn’t pass the Heroes Act and make these expenses tax deductible.
Phase 5: at the end of the process, the SBA could audit your loan. The SBA has already stated that all loans over $2 million will automatically be audited. We don’t know what the audit process is going to look like, what they’re going to be looking for, how often they are going to take action, or what that action may look like. It also remains to be seen how the SBA will prioritize audits for loans under $2 million. It is reasonable to assume that the SBA could reverse part or all of a loan forgiveness amount. And I’ll say it again, companies that are truly relying on loan forgiveness for survival will be in real trouble if the SBA audit finds against them.
