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SBA PPP loans update

Many of our clients have seen their SBA PPP loans approved and/or funded this week. It is our understanding that the SBA is now reaching their lending limit under the program. Congress is working on increasing the funding by $250 billion. That increased funding is being held up by disagreements between the Democrats and Republicans over whether to include other items in that bill.

Now that businesses are starting to receive funding, we have seen more inquiries on the process for the forgiveness on these loans. Yesterday we provided detail on the calculation of forgiveness. Today we want to provide information on the documentation that businesses need to accumulate to provide to the banks to support the debt forgiveness.

To a large extent the SBA relied on borrowers to certify that the amounts requested on their loans were properly calculated. Some banks required further information for their records. For the loan forgiveness Congress specified in the CARES Act the documentation necessary to establish the amounts of forgiveness. Following are the items that Congress specified must be provided:

  • An application including a certification from an authorized representative of the loan recipient that states the following:
    • The documentation presented for the loan forgiveness is true and correct, and
    • The amount for which forgiveness is requested was used to retain employees, make interest payments on covered mortgage obligations, make payments on a covered rent obligation, or make covered utility payments
      • Covered for this purpose means that the debt, lease, or utilities were effective prior to February 15, 2020
  • Documentation verifying the number of full-time equivalent employees on payroll and pay rates for the eight-week period following the loan origination and the base period for comparison. This documentation includes the following:
    • Payroll tax filings with the IRS (2019 W-2 Forms, 2019 941 Forms, 2019 940 Form)
    • State income payroll and unemployment insurance filings (Quarterly state unemployment wage reports)
    • Most businesses will need to include the payroll summary report for each payroll period in 2019 and each payroll period during the eight-week period following loan origination. If the business has not had any employee turnover, these reports might not be required. Note that this item is not listed in the CARES Act. However, the FTE calculation is an average by pay period. The quarterly tax filings required in the CARES Act are not sufficient to calculate the FTEs.
    • If the business reduced the number of employees or compensation and then reinstated the number of employees or the compensation by June 30, 2020, that business will need to also include documentation showing the reinstatement of the employees or wages.
  • Documentation to verify payments of mortgage interest, rent, utilities including:
    • Cancelled checks,
    • Payment receipts,
    • Account transcripts, or
    • Other documents
    • Note that the CARES Act states “or” but individual banks might request all these types of documentation.
  • Documentation of retirement plan contributions, and employee healthcare costs was not addressed in the legislation. However, we expect banks to require documentation of these payments as well.
  • Documentation of income for the self-employed and for partners in partnerships was not addressed in the legislation. We expect the banks to require copies of 2019 individual and partnership tax returns to support these amounts.
  • The legislation does not address documentation of the existing lease agreements, or loan agreements. We expect many banks to require copies of loan and lease agreements as part of their package to demonstrate that the payments qualify.

This list shows what is required by the legislation. Other than the items noted as not required by the CARES Act language, all this information is required in order to receive loan forgiveness. Individual banks might require additional documentation. If you gather this information now, it should speed the process of getting some or all your PPP loan forgiven.

The SBA is issuing frequent updates to its guidance on the PPP loan program. We encourage all businesses to work closely with their CPA to plan for using the loan proceeds in a way that maximizes the benefit of the loan program.

If you have any questions about these updates, reach out to us at 303-989-7600.