Have a PPP loan? Here’s what to do now

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Follow these steps to ready yourself for the end of the waiting period

2020 has brought unprecedented experiences for business owners, and navigating the Payroll Protection Program certainly belongs on that list. The PPP came together at extraordinary speed, with plenty of questions and fluctuating guidance attached. Now, more than six months have passed, and more than five million loans — totaling over $525 billion — have been approved to cover payroll and other qualifying expenses in an effort to keep small businesses afloat.

Loan recipients are eager to move on with the loan forgiveness process and may be frustrated that banks are not yet accepting forgiveness applications (or that the Small Business Administration isn’t processing what applications are being accepted). Here’s what you can do to make this waiting period productive and to proactively prepare for the future:

Talk to your banker
Work with your lender to revise loan documentation to take advantage of the options to move the due date of your first payment to 10 months after the last day of your covered period and to change the amortization of those payments from two to five years if your loan was approved prior to June 5.

Discuss how you are reporting your PPP loan in your financial statements and the impact on maintaining loan covenants required by other debt. You may qualify to treat the loan as an “in-substance grant,” which means that you can recognize the income and reduce the loan balance as you spend it on qualifying expenses.

Focus on tax planning
Given the severity of the pandemic’s impact on U.S. businesses, the American Institute of Certified Public Accountants believes that Congress intended PPP expenses to be deductible. However, the IRS issued a notice in April stating that, based on historical precedence, these expenses are currently nondeductible.

To make things even more complicated, they are only nondeductible when loan forgiveness has been approved, which likely won’t happen until 2021. If your business applies for and receives loan forgiveness in 2020, you currently have nontaxable income and nondeductible expenses and can plan accordingly. However, if that isn’t the case, there is no guidance on the timing of when the expenses become nondeductible and how that could impact your 2020 and 2021 income tax returns.

Lawmakers from both parties have voiced support for PPP-qualified expenses being deductible, but that has not yet translated into congressional action. Businesses should understand the income tax effect of these expenses being nondeductible and what they can do to reduce their tax liability between now and the end of the year through other considerations, such as investments in equipment and the timing of expenses.

The fact that this is an election year makes tax planning critical as well, as we anticipate changes in the tax law. Lastly, consider extending your 2020 income tax returns until we have greater clarity around these issues.

Monitor the legislation
Members of Congress have proposed a much simpler process of streamlined forgiveness for loans under a certain amount. The commonly discussed threshold is loans equal to or less than $150,000, but that could change. There’s still a possibility that blanket forgiveness won’t ever be granted.

Update documentation
Borrowers with loans greater than $2 million should continue to update documentation supporting economic uncertainty, as the SBA will automatically review these loans.
Determine the “path of least resistance” to loan forgiveness.

With so many changing rules, take a fresh look to identify the qualified expenses for loan forgiveness that are supported by readily available documentation and that meet the rules currently in place. While you may have originally planned on using nonpayroll expenses to qualify for loan forgiveness, the longer covered period now available may make it simpler to use 100% payroll expenses. This will simplify the application and documentation process for you.

The PPP felt like we hurried up just to wait. But the waiting can be productive and even beneficial to your business as you prepare for the impact of future guidance. It will come eventually — we just don’t know when.


Tanya Silves joined Larson Gross in 2001 and is now a part of the firm’s ownership group. She leads the firm’s consulting practice, where she concentrates on personal and business advisory services. Her primary focus is serving owner-operated businesses with tax planning and a wide variety of consulting topics, including budget and cash flow planning, profitability analyses and ownership transition planning.

She has led the firm’s effort on understanding and advising businesses on the Paycheck Protection Program and Small Business Administration’s Economic Injury Disaster Loans made available through the CARES Act in response to the COVID-19 Pandemic.