Expertise Beyond the Numbers

Paycheck Protection Program (PPP) Round 2: How Small Businesses Should Move Forward

Updated 5/27/2020 at 2:37pm ET

Congress Approves $484 Billion Package – $370 Billion Allocated for Small Business Loans, Including the Paycheck Protection Program and EIDL.

SC&H’s Key Takeaways

  • The deal allocates $310 billion more for the Paycheck Protection Program, $60 billion of which will be set aside for small lenders.
  • Funding is expected to go quickly – so businesses need to ensure they apply immediately, and ensure they are communicating with their banks to ensure they are participating, and that their application procedures are followed.
  • PPP loan forgiveness is dependent upon whether you used the proceeds in the prescribed manner.

The Paycheck Protection Program (PPP) ran out of funds in 14 days. Between April 3, 2020 and April 16, 2020, 1.66 million businesses, independent contractors and sole proprietors rushed to apply for the $349 million authorized under the CARES Act to help American businesses survive the economic crisis caused by the COVID-19 pandemic. Unfortunately, many businesses did not receive any money, much less hear back on their application status. The reasons for this vary. A few banks fumbled their rollout of the loan program resulting in costly delays. Several banks restricted loans to existing business relations. And other banks didn’t participate in the program at all. For those businesses that didn’t receive a PPP loan, there is still hope.

On Thursday, April 23, Congress signed off on a coronavirus relief agreement that includes $370 billion to loan programs for small businesses, including $60 billion to be set aside for small lenders.

Here’s how the $370 billion breaks down further:

  • $310 billion total for PPP, with $250 billion unrestricted and $60 billion set aside for smaller institutions.
  • $50 billion for EIDL loans and $10 billion for EIDL grants

Regarding the smaller institutions, it will be broken down by allocating $30 billion to lenders with assets of less than $10 billion, and $30 billion going to those with assets between $10 billion and $50 billion.

Now What?

If you are planning on applying for the upcoming round of PPP funds, it would be helpful to know what to expect and how to prepare. Here are some key points that we’ve learned while helping our clients through this process.

This Money May Be Gone Before It Starts

The PPP funds will not last long. There are many applications that are either approved and waiting for funding, or that will be submitted in the hopes of funding later this week. If you want these funds, you need to act now and apply as soon as possible.

Choose the Right Lender

Many banks chose not to participate in the in the PPP program. Some of the banks that did participate in Round 1 have dropped out and are opting not to participate in Round 2. And many lenders are not accepting PPP loan applications from applicants who do not have an existing business account. You should contact your bank now to see if they will be participating in the program and if your banking relationship allows you to participate. If not, you have a short period of time to establish a new banking relationship with a participating lender.

Switch Lenders Carefully

If you switch to a new SBA lender, make sure any previous application is pulled. You can only have 1 PPP loan. And while multiple applications aren’t against the rules, some banks believe multiple applications could result in applications being voided or delayed.

Be Careful How You Apply

When you apply, you need to be certain that your initial application—if there was one—isn’t going to be automatically submitted again or isn’t already submitted and waiting for this new funding. Businesses need to talk to their bank.

PPP Loan Forgiveness

The biggest benefit of the PPP loan is that it is forgivable. The strategy in how you deploy that cash must follow the SBA’s guidelines in order to be forgiven. Once you receive the PPP loan proceeds, the clock starts. You have 8 weeks to spend the money on qualified expenditures. At least 75% must be spent on payroll, and up to 25% can be spent on business loan and mortgage interest, rent, and utilities. The SBA will be releasing further guidance on the PPP forgiveness procedures, and we will update this article as soon as more information is available. However, your business needs may dictate that you use the funds in a different way. For businesses in industries that may take longer to get up and running again, maybe you’re focused more on preserving that cash—that’s fine—just know that the loan won’t be forgiven unless the proceeds are used in the prescribed manner.

Economic Injury Disaster Loan – More Funding

There is more funding on the way – $60 billion worth. The previously updated grant rules still apply, meaning that aid will be limited to $1,000 per employee up to $10,000—if you get the money.

Nearly four million businesses applied for EIDL in the first two weeks of the expanded program – and it quickly went through the $10 billion originally allotted to it as part of the first small business plan.

And to further complicate things, the SBA announced this week it had notified 8,000 small-business owners about a software bug that may have exposed their personal information online. The bug has since been fixed, but it certainly further muddies a program which many small businesses were counting on to help.

Accounting Guidance

There is no guidance in US accounting standards that specifically addresses the accounting by business entities for government assistance. Under US GAAP, a company may consider authoritative guidance from other sources (for example, guidance issued by other standard setters) if no guidance exists within US GAAP.

International Financial Reporting Standards provides guidance that is directly relevant to the accounting for loan forgiveness under the PPP. We have been advising clients to follow the guidance in IAS 20, which states: “A government grant is recognized as income over the period necessary to match the income with the related costs, for which they are intended to compensate, on a systematic basis.”

Accordingly, the loan forgiveness should be recognized in the periods in which the related costs are incurred (i.e. payroll, rent, utilities, mortgage interest, etc.). The fact that the loan forgiveness will not be formally approved until a later date should not preclude the recognition of the loan forgiveness as long as there is reasonable assurance that you complied with the conditions of the PPP and the calculation of loan forgiveness can be calculated with a reasonable degree of certainty.

You should estimate the amount of loan forgiveness using the guidance issued by the SBA at the end of each accounting period. Any changes in the amount of the loan forgiveness would be treated as a change in estimate and recorded in the accounting period in which the estimate changes.

IAS 20 goes on to state that a grant may be reported separately as other income or deducted from the related expense. We are recommending that the loan forgiveness be shown as other income.

We anticipate that the FASB and/or the SEC will provide some guidance shortly and will update this article when this becomes available.

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Now that this latest round of additional funding has passed, leaders from both parties are already turning their focus on the next round of stimulus for the stalled U.S. economy, and have started to detail their goals for additional legislation as part of an unprecedented emergency response. So, there will be more coming.

We’ll continue to keep an eye on new guidance and updated rules as it relates to this new round of funding and will update this article once this information becomes available.

In the meantime, if you have any questions for the SC&H Group Team, please reach out to us directly through our website.