On July 3rd, President Trump signed the PPP Extension Act. The new extension allows for application of PPP loans until August 8th, 2020. As the initial PPP program was set to expire, more than $130 billion of funds were still available. Many potential borrowers were unable to navigate the often confusing process of applying and many more were unable to find cooperative lenders. Many of them are independent contractors or sole proprietors, and other LLCs and companies who file 1120S income tax returns, or “S Corporations.” Still others who are joint owners of businesses file taxes with Form 1065. Each of these types of borrowers have specific rules applying to them regarding PPP loans.
In an attempt to provide transparency, the SBA and the Treasury Department released the complete database of all PPP loans issued to date—approximately 4.9 million. Treasury Secretary Steven T. Mnuchin stated, “The average loan size is approximately $100,000, demonstrating that the program is serving the smallest of businesses.” He added that, “[the] release of loan data strikes the appropriate balance of providing the American people with transparency, while protecting sensitive payroll and personal income information of small businesses, sole proprietors, and independent contractors.” In a typical year, the SBA issues about 1,000 loans, so this unprecedented program, while at times frustrating, is succeeding in increasing economic liquidity.
Borrowers also have questions about loan forgiveness, safe harbors, audits, and more. A certain amount borrowed may be forgiven. Independent contractors and sole proprietors, or Schedule C filers, for example, can apply for loans based on 20.833% of their Schedule C net income, and that amount will be automatically forgiven. There are specific formulas for each type of small business.
But the main question many have is when they can file for forgiveness. The latest rules states, “A borrower may submit a loan forgiveness application any time on or before the maturity date of the loan–including before the end of the covered period—if the borrower has used all of the loan proceeds for which the borrower is requesting forgiveness.” An easier loan forgiveness application, Form 3508EZ, has also been made available.
A myriad of new/extended safe harbor dates in regards to workforce reduction, governmental guidelines caused reduction, and inability to rehire individuals are outlined in the June 5th PPP Flexibility Act. In addition, there is specific information regarding health insurance costs, retirement plan expenses and owner wages versus employee versus owner-employee wages.
Smaller businesses are unlikely targets for audits, as the SBA already provides a safe harbor, whereby loans under $2 million will be considered made in good faith based on economic uncertainty. But it is important to have all supporting documentation on hand throughout the entire process.
Your attorney is an invaluable resource to help you navigate this difficult and often confusing process. At Davis Miles McGuire Gardner we are ready to dive in with you and help you apply for the loan you need to stay afloat.