Paycheck Protection Program Loan Forgiveness Update

As of this writing, the Small Business Administration (SBA) has released limited official guidance on loan forgiveness for the Paycheck Protection Program (PPP). From the conversations that we have been involved with nationally, we would like to provide some key takeaways:

1. A frequent question has been if businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan? Refer to question #31 in the U.S. Treasury Guidance. The short answer is no. We recommend that all organizations who have taken a PPP loan maintain clear documentation as to what the decision making process was to take the loan and how the organization met the “good faith” certification that the loan was a necessity.

2. For coding of expenses, the recommended best practice is to code the expenses that you are going to use for forgiveness to their own set of accounts/class as you are expending them and to make sure you are not charging “forgiveness” expenses (which have to be 75% salaries and benefits for forgiveness) to both the PPP loan and to another governmental/private foundation funding source (i.e. no double dipping).

3. Regarding double dipping, if you have another governmental/private foundation funding source involved that could be an issue in avoiding double-dipping, the recommendation is to contact that funder for a modification to use those dollars for salaries and benefits that would occur after the PPP loan forgiveness period (8 weeks for forgiveness begins on the date that your lender made the first disbursement of the loan.) Please note “double-dipping” jeopardy does not apply to fee-for-service or other exchange transaction revenue sources.

4. Regarding potential audits/Single Audits, it has been reported in the news that Treasury Secretary Steven Mnuchin has said that every organization receiving over $2 million will get a “full audit”. This is not yet a regulation. It has not yet been determined if the loan counts as federal financial assistance that could trigger a Single Audit. Therefore, it is best to treat the money as you would any grant funding for which you have to perform exact record keeping that is subject to audit.

The AICPA GAQC is also asking questions about how the Single Audit will interact with CARES Act funding in their letter dated April 10, 2020.

5. There have been recommendations to open a separate bank account in which to spend the PPP funds. This is not a specific part of the SBA regulations but a consideration. Again, an exact record keeping system will be critical. If the bank that provided the PPP loan recommends a separate bank account, the suggestion should be seriously considered. The lender will be determining loan forgiveness based on SBA guidance.

The AICPA has open resources on PPP loan forgiveness that they have been updating regularly; please check out the forgiveness of loan section of their FAQs.