In today’s AICPA Town Hall, they reviewed the reasons a business might decide to apply for PPP forgiveness now — even though we have been consistently recommending to loan recipients that they wait until there’s movement from Congress on an automatic or streamlined forgiveness program (and continue to do so).
Basically, unless you are:
1) selling your company; or,
2) potentially violating loan covenants because of the PPP being represented as a liability; or,
3) needing to lay off staff after meeting FTE reduction requirements;
…you should still hold off on applying for forgiveness.
However, if you are in one of the groups above, then consider the AICPA‘s list of “Factors impacting timing of forgiveness application”:
• Has the borrower spent the full amount of PPP funds?
• Is borrower trying to sell the business? See Oct. 2 SBA Procedural Notice
• Is the loan under/over the $150k dollar amount of potential threshold for simplified forgiveness in Congress? (New form for <$50K)
• Has tax planning around timing of deductibility of expenses paid with PPP funds been considered? See Aug. 20 discussion with Ed Karl (AICPA VP of Tax)
• Does the borrower need to make business operating decisions that may include FTE reductions? (See AICPA FAQ #10, below)
• Does borrower want to get PPP debt off the books? Are there loan covenants to consider?
• Is the lender even accepting applications?
It’s important to weigh all of these criteria before making the decision to apply for forgiveness.
And for reference, here’s AICPA FAQ #10:
If a borrower applies for forgiveness before the end of the covered period, how does the FTE reduction safe harbor work in operation?
The instructions for the Form 3508 forgiveness application indicate that the borrower includes the number of FTEs at the end of the covered period OR the date the application is submitted. The SBA has provided information to lenders as follows: “When a borrower submits the completed application and a lender has processed the borrower’s forgiveness application, the borrower is no longer bound to the FTE restrictions. The covered period ends when the borrower successfully applies for forgiveness.”
To summarize: we still recommend, as does the AICPA, that unless you fall into one of the groups above, you hold off on forgiveness applications for now. Work with your CPA to run the numbers to make sure you meet the requirements as they currently stand — knowing they might get easier, but protecting yourself if they don’t — but hold off on the actual application until Congress takes some action, which will be coming eventually… it’s a question of “if”, not “when”.
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