Wait to Apply for Paycheck Protection Program Forgiveness

November 3, 2020
Sonya Wright

Background

In October, the SBA rolled out loan forgiveness applications for the PPP, with a simplified application for loans of $50,000 or less. Businesses have either 8 or 24 weeks to use the loan proceeds, and 10 months after that to apply for forgiveness before loan payments begin.

PPP loans were issued between April 3 and August 8, so the earliest date any loan payments would be due is April 2021 (April 3 + 8 weeks = June 2020 + 10 months). Therefore, no loan payments are due this year, even though your bank may have notified you that payments are now due unless you apply for forgiveness.

Why you should wait to fill out that forgiveness application

When Congress provided us with the PPP, the intent was that it would not be taxable to businesses. However, the IRS came out a few weeks later and said that borrowers would not be able to claim tax deductions for the expenses covered by forgiven loan proceeds. Since then, Congress has proposed legislation that would allow those expenses to be deducted, but as of this writing, that legislation has not passed. The Senate has been in recess since October 10 and will be back in session November 9.

Therefore, if you received a PPP loan, it’s to your benefit to wait until next year and until final legislation has passed before applying for forgiveness. You have time, so don’t be pressured into moving forward before it makes sense to do so. And talk to your tax professional about your situation before you take action.

And a side note . . .

When the PPP was first passed, payments were deferred for 6 months, which may be what’s reflected on your loan paperwork. However, in June the PPP Flexibility Act was passed, which increased the deferral period to either:

10 months after the SBA advised lenders of the forgiveness amount, or
10 months after the end of the forgiveness covered period, if the borrower does not apply for forgiveness.

Earlier this month the SBA confirmed that the 10 month deferral period applies automatically to all PPP loans and does not require that the promissory note be amended to reflect the longer period.