Posts tagged with "paycheck protection program"

AICPA makes PPP loan forgiveness recommendations

The AICPA on Wednesday issued a series of recommendations it would like to see the U.S. Small Business Administration (SBA) adopt and issue as guidance for small businesses to use in calculating loan forgiveness under the Paycheck Protection Program (PPP).

In the release, the AICPA urges that:

  • The eight-week covered period under PPP should align with the beginning of a pay period, not the date loan proceeds are received.
  • The eight-week period should be flexible, with businesses able to choose to commence it once stay-at-home restrictions are lifted instead of when loan proceeds are received.
  • Full-time equivalents (FTEs) should be calculated using a simple wage-based proxy when hours worked are not tracked by the employer (e.g., for salaried workers or those paid by piece).
  • Payroll reduction calculations should be based on an employee’s average payroll per week in the eight-week period compared to the prior quarter, rather than comparing total compensation in the periods. Loan forgiveness is reduced if an employee’s compensation decreases by more than 25% but an eight-week period will naturally have 33% less payroll than a 12-week quarter.

The AICPA also addressed the eight-week loan forgiveness period in a letter sent late Tuesday to Treasury Secretary Steven Mnuchin and SBA Administrator Jovita Carranza. In the letter, signed by AICPA President and CEO Barry Melancon, CPA, CGMA, the AICPA lays out the case for changing the current interpretation for when to start the eight-week period for the forgiveness calculation component of the program.

Congress created the PPP as part of the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136. The legislation authorized Treasury to use the SBA’s 7(a) small business lending program to fund loans of up to $10 million per borrower that qualifying businesses could spend to cover payroll, mortgage interest, rent, and utilities. PPP borrowers can qualify to have the loans forgiven if the proceeds are used to pay certain eligible costs. However, the amount of loan forgiveness will be reduced if less than 75% of the funds are spent on payroll over an eight-week loan forgiveness period.

Current guidance from Treasury and the SBA interprets the eight-week period as beginning on the date the lender makes the disbursement of the PPP loan to the borrower. However, the AICPA says, with many states still shut down by government order, most small businesses are unable to bring their employees back to work. For those businesses, starting the loan forgiveness clock on the date the lender disburses the funds means the recipient business must either pay employees while it is unable to operate or forgo the maximum amount of loan forgiveness. Flexibility in the start dates of the eight-week period would position more small businesses to survive and contribute to an economic rebound while working within the parameters of the CARES Act and subsequent guidance.

To address this problem, the AICPA letter urges Treasury to “[i]mmediately take a very simple but critical step and define the origination date as the date on which a state’s shelter-in-place order is lifted and businesses are authorized by government to return to full operations. This will provide the necessary flexibility for the 8-week clock to start, businesses to bring back employees and to pay sufficient payroll to meet the 75% requirement.”

Recommendations provided

The AICPA has received numerous questions from CPAs about the loan forgiveness portion of the PPP. Many of those inquiries have sought answers on the documents and calculations that should be used in applying for loan forgiveness to be awarded.

In response, the AICPA has developed recommendations for applying for loan forgiveness that have been added to earlier recommendations on how to apply for PPP loans. The full list of recommendations is available on the AICPA’s website.

The AICPA said in the release that it has requested further clarification on how reductions in forgiveness are to be applied. Specifically, the AICPA is seeking clarity regarding how reductions in forgiveness are to be applied and whether the CARES Act lists forgiveness reductions in the intended order of application, as some of the forgiveness requirements cause a dollar reduction while others produce a percentage reduction. The order in which these are applied can have a significant impact on the forgiveness amount.

The AICPA’s recommendations were made in consultation with an AICPA-led small business funding coalition, CPA firms, and other key stakeholders. They build on previous guidelines the AICPA has provided to help bring clarity to the implementation of the PPP.

The PPP so far

Congress established the PPP through the CARES Act, which was signed into law on March 27. The program is available to small businesses that were in operation on Feb. 15 with 500 or fewer employees, including not-for-profits, veterans’ organizations, tribal concerns, self-employed individuals, sole proprietorships, and independent contractors. Businesses with more than 500 employees in certain industries also can apply for loans, according to the SBA and Treasury.

SBA lenders were flooded with PPP applications from businesses in need of resources to help their businesses as the coronavirus pandemic and the consequences from social-distancing requirements devastated the economy. By April 16, the SBA had stopped accepting applications for the PPP after exhausting the initial $349 billion in funding. Last week, Congress approved an additional $370 billion in funding for small businesses, with $310 billion in fresh funds provided to the PPP. The application window for the second round of PPP funding opened Monday.

The AICPA’s Paycheck Protection Program Resources page houses resources and tools produced by the AICPA to help address the economic impact of the coronavirus.

For more news and reporting on the coronavirus and how CPAs can handle challenges related to the pandemic, visit the JofA’s coronavirus resources page.

 Jeff Drew ( is a JofA senior editor.

CARES Act Introduces Forgivable Loans for Nonprofits With Paycheck Protection Program

On March 27, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act. While the sweeping legislation introduces a multitude of significant measures, the Paycheck Protection Program is a lifeline for nonprofits, injecting capital when they need it most. However, the hallmark of the program is that the loans can be partially or fully forgivable, provided certain criteria are satisfied.

What Is the Paycheck Protection Program?

  • The Paycheck Protection Program, which was allocated nearly $350 billion through the CARES Act, is an extension of the existing U.S. Small Business Administration (SBA) 7(a) Program.
  • Loan applicants may be granted up to $10 million with an interest rate not to exceed 4%.
  • The loans are nonrecourse, and collateral is not required to secure the loan.
  • The loan is forgivable if the employer maintains certain levels of full-time equivalents (FTEs) and payroll. The amount forgiven is based on a sliding scale through a compliance period.
  • Loan forgiveness under this program is non-taxable.
  • The new program waives the SBA’s “credit elsewhere” requirement, which determines whether the borrower has the ability to obtain some or all of the requested loan funds from alternative sources without causing undue hardship.

Is My Nonprofit Eligible?

  • Applies to certain nonprofits including 501(c)(3) organizations with fewer than 500 employees.

What Are the Borrower Requirements?

Borrowers must make a good faith certification to the following:

  • Uncertainty of economic circumstances makes the loan request necessary to support ongoing operations.  This certification should take into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.  If current economic circumstances support the likelihood that the employer will have to lay off employees, cut pay, or miss rent, mortgage, or utility payments then the statue would seem to be satisfied.   The loan applicant must be under enough financial stress that, without the PPP,  it would have to have pay cuts, layoffs, or missing rent, mortgage, or utility payments to stay financial healthy.  The loan is necessary to preserve the status quo regarding current business activity and related expenses.  The applicant only needs to exhaust those sources of liquidity that can be accessed in a manner that is not significantly detrimental to the business.
  • The Small Business Administration (SBA) has just released new guidance regarding the good-faith certification for Paycheck Protection Program (PPP) loans. This guidance, which was added as question #46 to the PPP FAQs, should come as welcome relief to many Nonprofits that took out PPP loans and have struggled with the good-faith certification. The SBA states that PPP loans with original principal amounts less than $2 million will be deemed to have made the certification in good faith.
  • Funds will be used to retain workers and maintain payroll or to make mortgage, rent, and utility payments.

What Is the Maximum Loan Amount I Could Receive?

  • The maximum loan amount for any recipient is $10 million.
  • Loans will be formula-driven: the average monthly payroll costs over the prior 12 months multiplied by 2.5.
    • In this calculation, payroll costs are categorized as follows:
Salary, wages, and commission Compensation for an employee that exceeds $100,000 (prorated over the covered period from Feb. 15, 2020, to June 30, 2020)
Cash tips or equivalents Compensation to an employee with a principal residence outside the U.S.
Vacation or other leave Qualified sick wages or family leave wages paid under Families First Coronavirus Response Act for which the payroll credit is permitted
Allowance for dismissal or separation Federal employment taxes including employees and employers share of FICA (Federal Insurance Contributions Act)
Payments for group health (insurance premiums)
Retirement benefits
Payment of state or local tax assessed on compensation


How Can I Use the Loan Proceeds?

The loan proceeds can be used for the following:

  • Payroll Gross Wages (at least 75% of the forgiven loan amount must be used for payroll) including paid leave and severance
  • Employer paid healthcare benefits (Medical, Dental, and Vision)
  • Employer paid retirement benefits
  • Employer paid state and local payroll taxes
  • Employee salaries, commissions, bonuses, or similar compensation that you would normally do
  • Interest on mortgage obligations (but not mortgage prepayments or principal payments)
  • Rent
  • Utilities (Water, Gas, Electricity, Telephone, and Internet)
  • Interest on other debt obligations that were incurred before Feb. 15, 2020

How Much of My Loan Will Be Forgiven?

Maximum Forgiveness Amount

  • Borrowers are entitled to loan forgiveness equal to the sum of the following expenses paid during the eight-week period, which begins on the loan origination date:
    • Payroll costs
    • Covered utility payments, including electric, gas, water, transportation, telephone, and internet access for which service began before Feb. 15, 2020
    • Covered rent obligation, including rent obligated under a leasing arrangement in force before Feb. 15, 2020
    • Covered mortgage interest obligation, including a mortgage on real or personal property incurred prior to Feb. 15, 2020
  • The loan forgiveness amount will not exceed the amount of the loan.   The PPP Loan Forgiveness appear to be based on full time equivalent not just headcount or number of employees as the application required.  Maintain proper documentation though the 8 week covered period.

Reduction of Forgiveness Amount

  • The loan forgiveness amount will be reduced if there is a reduction in the number of FTEs. This reduction percentage is calculated at the election of the borrower by either of the following:
    • Average number of FTEs per month (over the eight-week period)
      Average number of FTEs between Feb. 15, 2019, and June 30, 2019
    • Average number of FTEs per month (over the eight-week period)
      Average number of FTEs between Jan. 1, 2020, and Feb. 29, 2020
  • The loan forgiveness amount will be reduced by any reduction in total salary or wages of any employee that is in excess of 25%. This applies only to employees that received a 2019 annualized salary of less than $100,000.
  • There is a special rule for a reduction in seasonal employees.
  • Employers can mitigate – or eliminate these reductions – if they restore the number of FTEs and total salary by June 30, 2020.

Any balance remaining after the loan forgiveness would have a maturity of 2 years. The interest rate will be one percent for loans not more than $350,000; .50 percent for loans of more than $350,000 and less than $2,000,000; and .25 percent for loans of at least 2 million.  You will not have to make any payments for six months following the date of disbursement of the loan.

Loan Forgiveness Application

Documentation is critical for loan forgiveness. Here is a list of documentation that would need to be submitted to your lender:

  • Verification of FTEs and pay rates
  • Payroll tax filings
  • State income, payroll, and unemployment insurance filings
  • Documentation that covered mortgage, rent, and utility obligations were made
  • A certified statement that the amount of forgiveness was required to retain employees or meet the covered obligations

Lenders will have 60 days to render a forgiveness determination.   Borrowers may have to certify loan proceeds were used for authorized purposes.  You need to keep or increase your FTE count to maximize loan forgiveness.

The Small Business Administration (“SBA”) issued the Loan Forgiveness Application on May 15, 2020 and revised it on June 16, which may be accessed here. The application addresses a number of questions previously posed by borrowers, and we anticipate additional guidance regarding forgiveness to be forthcoming.

Congress passed the Paycheck Protection Flexibility Act to make it easier for small businesses and other PPP borrowers to qualify for full loan forgiveness. Among the changes in the act are an expansion of the “covered period” for loan forgiveness to 24 weeks from eight weeks, a reduction of the proportion of proceeds that must be spent on payroll costs to 60% from 75%, and the establishment of a safe harbor for businesses that have been unable to return to the level of business activity they had before the COVID-19 pandemic due to compliance with health and safety guidelines for slowing the spread of the virus.

PPP Loan Funds not subject to single audit

One of the most common questions we have received is whether SBA PPP loans obtained by NFPs are subject to the Uniform Guidance single audit requirements. The good news is that we have recently received an answer to this question. Based on recent discussions with SBA staff, we have been informed that PPP loans made to NFPs will not be subject to single audit.

PPP Loans:  Accounting Considerations from the AICPA

Keep in mind that whatever is not forgiven will continue to remain a loan payable.  You should consider comparing your allowable expenses for PPP versus your other federal grants and contracts.  There may be other allowable expenses your other federal funding can cover, including during the 8 week period.   Organizations receiving other federal funds cannot “double dip” meaning you cannot claim the same expenses twice to two different funding sources.

You need to start managing the loan by recording the loan in your general ledger.   You should create a long term liability account called PPP Loan Payable.  You will record the cash when loans proceeds are received and offset to PPP Loan Payable.    You should setup a contribution revenue account called PPP Loan Forgiveness or PPP Grant.  You will setup a funding source called Paycheck Protection Program to track all activity including allowable expenses and unallowable expenses.

You should setup an Interest Expense account for the portion in which forgiveness is not expected.    Accrue interest expense at 1% APR against the total loan amount until full forgiveness determined or all funds paid back.

On May 13, 2020, the AICPA, through the Center for Plain English Accounting (CPEA), released a report (“Accounting in the Fog of War – Treatment of PPP Loans”) to provide clarification on the accounting considerations.  Although the report is non-authoritative guidance, the CPEA is the AICPA’s national accounting and auditing resource center.   While there are several nuances to consider in the accounting that could impact the treatment and judgments that may been to be made by management, there are some overarching scenarios to review.

Scenario 1 – The Loan is Intended to be Repaid

If repayment is expected, the loan should be accounted for consistent with other debt arrangements (FASB ASC 470) and reported as a loan payable. If facts and circumstances change and partial or total forgiveness is obtained, the gain on extinguishment is recognized once the company is legally released as the primary obligor of the debt.

Scenario 2 – Partial or Total Forgiveness is Anticipated – Entity is a Not-For-Profit Entity

If partial or total forgiveness is anticipated for a not-for-profit (NFP), the report recommends accounting for the funds similar to other government grants under FASB ASC 958-605. Due to the forgiveness being conditional on incurring the qualified expenses (among meeting other criteria), the funds will be initially accounted for as a refundable advance and will generally be recognized into contribution revenue as the qualified expenses are incurred.  A key consideration in this treatment is that contribution revenue is only recognized as the conditions of the program are “substantially met;” for the portion in which forgiveness is not expected, no revenue should be recognized and interest will be accrued on the advance.  Accounting for the funds as Government Assistance under the International Accounting Standards (IAS) 20 model will record funds recognized into other income.

Please contact us for help with the Paycheck Protection Program.