As the year 2020 comes to a close, the slow trickle of information on payroll protection program loans (PPP Loans) has turned into an uncontrolled firehose of data. Here are the top 4 things business owners need to be aware of regarding their PPP Loans as we come to the close of 2020.

1. Loans are being forgiven. In late November we received first word that PPP Loans were, in fact, being forgiven. In many instances full loan forgiveness has been confirmed and business owners can rest easy knowing they don’t have to pay back any of their PPP Loan funds. In other instances only a portion, even as low as half, of the PPP Loan was forgiven. For those expecting full loan forgiveness, this was not welcome news. Additional information regarding if and when your PPP Loan will be forgiven is available at the discretion of the Small Business Administration (SBA). The prospect that many PPP Loans will be forgiven, either wholly or partially, by the end of the year is looking more and more realistic.
2. Expenses paid with PPP funds are non-tax deductible. Contrary to how PPP Loans were initially advertised as non-taxable, the IRS announced that any expenses that were paid using PPP funds will not be tax deductible. This, in effect, will increase the bottom line of individuals and businesses who used these PPP Loan funds. As such, consulting with your tax professional on the implications of loan forgiveness will help you prepare for a possible increased tax bill.
3. When should I apply for forgiveness? In general, you should be applying for PPP Loan forgiveness soon after your 24 week covered period ends. For example, if you received your PPP funds on April 15, 2020, your covered period ended on September 30, 2020. As soon as you have your payroll reports and associated documentation you should begin the process with your lender. You can also engage the help of an accountant or other financial professional to assist in the process with your lender.
4. What is required for loan forgiveness? Although the specific requirements vary based on lender interpretations of the SBA guidance, most lenders have consistently requested payroll and other documentation to verify that PPP funds were used for approved purposes. Examples of frequently requested payroll documents include quarterly wage information found on Form 941, payroll reports showing employees, wage rates, and number of hours for the covered period, and bank statements showing the payment of qualified employee benefits. Additional information on specific lender requirements can be found on your lender’s website or by contacting your loan officer.

You can find additional information regarding PPP Loans and PPP Loan forgiveness at the SBA website https://www.sba.gov or by reaching out to your CPA or other financial professional.