PPP update from Basi, Basi & Associates at The Center for Financial, Legal & Tax Planning, Inc.

If you are looking to buy a business or sell a business, this article by Basi, Basi and Associates is an essential read.

The following is a copy of their article but is totally relevant and shared by Legacy Business Brokers effective November 3, 2020. Always seek the support of a profession business advisor for legal, financial and brokering support.

Recent Developments and Guidelines for PPP Loans from the SBA

Over the course of the first half of October, the SBA has released three new guidelines addressing some of the most frequently asked questions regarding PPP loans. For those of you that are unaware, PPP (Paycheck Protection Program) loans were provided to small businesses as a response to the economic losses due to COVID-related shutdowns. PPP borrowers can qualify to have the loans forgiven if the proceeds are used to pay certain eligible costs. On August 8, 2020, the program stopped accepting new applications even though almost $134 billion of congressionally approved funds remained unspent. Now, most businesses are focusing on applying for forgiveness, which is all but guaranteed so long as 60% of the forgiven amount was used for payroll purposes.

On October 5, 2020, the SBA announced new guidance that described the procedures requiring a change of ownership of an entity that has received PPP funds. The SBA procedural notice, which was addressed to SBA employers and PPP lenders, described when a change in ownership has occurred and the duties of a PPP borrower continue regardless of the ownership change. According to the notice, a “change of ownership” occurs when one of the following is true: 1) at least 20% of the common stock or ownership interest of a PPP borrower is sold or otherwise transferred; 2) the PPP borrower sells or otherwise transfers at least 50% of its assets to be measured by fair market value; or 3) a PPP borrower is merged with another entity. Notwithstanding any ownership change, the PPP borrower still remains responsible for performance of all obligations under the PPP loan, certifications associates with the PPP loan application, compliance with all PPP requirements, PPP documentation, and providing the required documentation to the SBA or lender upon request. The SBA must be notified within five (5) days of any transaction by the PPP lender. The lender is also required to continue submitting the monthly 1502 reports until the PPP loan is fully satisfied.

On October 7, 2020, the SBA released guidance clarifying the deferral period for PPP loan payments. Prior to the passage of Paycheck Protection Program Flexibility Act of 2020, the deferral period for PPP loan payments was set at 6 months. However, the Flexibility Act extended the deferral period for borrower payments of principal, interest, and fees on all PPP loans to the date that SBA remits the borrower’s loan forgiveness amount to the lender (or, if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period). Under the updated guidance, PPP lenders are required to give immediate effect to the statutory extension and must notify all borrowers of the change.

On October 9, 2020, the SBA released an interim final rule (IFR) that provided almost instant relief for approximately 3.57 million businesses. If their PPP loan was for $50,000 or less, businesses are exempt from any reductions in forgiveness based on either: reductions in full-time equivalent employees or reductions in employee salaries or wages. Small businesses that fit in this category may apply for forgiveness using SBA Form 3508S. The new rule speeds up the forgiveness process for PPP borrowers of $50,000 or less because they will not be required to perform potentially complicated FTE or salary reduction calculations. Because most businesses would hire an outside source to do this work, they are now also more likely to save money on this portion as well. Borrowers of $50,000 or less will still have to make some certifications and provide documentation to the lender for payroll and nonpayroll costs.

Guidance with regards to PPP loans seems to be rapidly changing. However, most if not all of these changes have been beneficial to small businesses that have been impacted by COVID- 19. If you have any further questions or would like our assistance in applying for PPP loan forgiveness, contact the tax planning professionals at The Center for Financial, Legal and Tax Planning online at www.taxplanning.com or call (618) 997-3436.