The Payroll Protection Program by the Trump administration is a godsend for businesses during this COVID-19 pandemic. Just two weeks from its launch, over 1.6 million businesses have enjoyed its benefits. Since then, the Small Business Administration and Senate have released updates to make the program even more accessible for small business owners.

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One exciting feature of the PPP program is the forgiveness of loans for those that follow certain conditions. These conditions include the continuous payment of salaries and retention of employees. Another requirement would be that employers should use at least 75% of the grant to pay for wages. Most updates on these conditions focus on the last item.

Concerns on how businesses can spend their loans have worried employers and business groups. Most fear that the rigidness of the loan policies can bury businesses in debt. Because of this issue, lawmakers decided to ease these policies by lowering the PPP loan forgiveness down to 60%. 

Companies can now allocate up to 40% of their loan to other operating expenses such as rent and utility expenses. This update is especially helpful to businesses that spend less on salary expenses and more on other fixed costs. You can read more about this update through this article by Jeff Drew on the Journal of Accountancy last June 4, 2020.

PPP forgiveness changes coming as Senate passes House bill

The U.S. Senate passed the House version of Paycheck Protection Program (PPP) legislation Wednesday night, tripling the time allotted for small businesses and other PPP loan recipients to spend the funds and still qualify for forgiveness of the loans.

The bill passed in a unanimous voice vote hours after Wisconsin Sen. Ron Johnson initially blocked it. Among the key provisions is a change in the threshold for the amount of PPP funds required to be spent on payroll costs to qualify for forgiveness to 60% of the loan amount. Click here to read more…

Although generally welcomed with open arms, these updates also caused some confusion among some employers and accountants. For example, the original version of the Payroll Protection Program allows partial forgiveness for businesses that are unable to reach the 75% threshold. The new version, however, is vague whether this option is still available.

Fortunately, the SBA and other governing bodies are working together to clarify these issues. Last June 8, Jovita Carranza (SBA Administrator) and Steven Mnuchin (Treasury Secretary), released a joint statement to announce that employers can still apply for partial loan forgiveness. 

The American Institute of Certified Public Accountants issued guidance to assist accountants on the proper accounting for these loans. The publication covers topics such as cash flows, interest recognition, liabilities, and more. Ken Tysiac posted a discussion of this guidance last June 11, 2020 on the Journal of Accountancy.

AICPA issues guidance on accounting for forgivable PPP loans

A nongovernmental entity may account for a Paycheck Protection Program (PPP) loan as a financial liability in accordance with FASB ASC Topic 470, Debt, or under other models, if certain conditions are met, according to new guidance for borrowers issued Wednesday by the AICPA.

The AICPA worked with many of its volunteer members, and also the FASB staff, to develop Technical Question and Answer (TQA) 3200.18, Borrower Accounting for a Forgivable Loan Received Under the Small Business Administration Paycheck Protection Program. Click here to read more…

If you have questions on the accounting for your Payroll Protection Program loan, we at AldarisCPA are always ready to help you. We have an elite team of expert and seasoned Certified Public Accountants to guide you with your accounting needs. Reach us now by setting an appointment with this link.