4 Insights into the PPP & Forgiveness

August 6th, 2020 at 7:01 AM

I receive many questions about the Payroll Protection Program (PPP). Here are two of them with our answers. 

1. Good Faith at the Time

Question. What are your thoughts on the repercussions for business owners who acted in good faith based on the information available at the time and are now left to do things that may be more questionable to earn PPP loan forgiveness? 

Answer. First, with good faith, there’s no fraud issue as there is no fraud intent. Second, lenders and individuals had to scramble for a good two months or more before guidance was clarified, so many of the PPP loan application forms were murky (and some still are). 

Obtaining the loan based on the guidance that existed at the time of your loan application and approval is a non-issue. Further, during the early process, lenders used (and in some cases, still use) their own formulas to determine the loan amounts. 

As to taking “questionable” actions to earn forgiveness, if you follow the forgiveness applications, you are doing nothing questionable. 

And that’s what you should do: follow the instructions in the loan forgiveness applications. No funny business. 

1. EIDL, EIDL Advance, and PPP

Question. I’m seeing the Economic Injury Disaster Loans (EIDL), EIDL advance, and the PPP. What are the differences? 

Answer. We’ll deal with the big picture here. It will prove helpful. 

PPP. The PPP is the cash infusion program of choice. The cash infusion part comes from a bank or other SBA lender and is based on your prior payroll (2019 in most cases). It comes into your business as a forgivable loan if you spend the money on defined payroll, interest, rent, and utilities during a period of up to 24 weeks. 

Example. You receive a $50,000 PPP loan and spend it within the 24 weeks on defined payroll with no reduction in your employee head count. You qualify for 100 percent forgiveness. 

EIDL. Unlike the PPP loan, which comes from a bank or other approved SBA lender, the EIDL is a loan directly from the SBA; it carries a 3.75 percent interest rate, may require collateral, and must be repaid. 

EIDL advance. The EIDL advance, when available, comes into play with the EIDL application. It’s an advance on the EIDL of up to $10,000. If you reject or don’t receive an EIDL and don’t have a PPP loan, the EIDL becomes a non-taxable grant and does not have to be repaid. 

If you have a forgivable PPP loan, you reduce the amount of forgiveness by the amount of your EIDL advance. 

Example. You have a forgivable PPP loan of $30,000 and an EIDL advance of $7,000. The lender will forgive $23,000 of your $30,000. Let’s say you pay off the remaining $7,000. In this case, you have received a net of $30,000 ($7,000 + $30,000 – $7,000). 

Mark S. Fineberg, CPA