Journal of Accountancy ~ The U.S. Small Business Administration (SBA) and Treasury issued an 18-page document Tuesday detailing how Paycheck Protection Program (PPP) borrowers should calculate revenue reduction and maximum loan amounts for second-draw PPP loans. The guidance also lists the documents borrowers must provide to support each set of calculations.
The release came after SBA and Treasury issued three pieces of guidance over the weekend:
A 12-page document detailing calculation processes and required documentation for first-draw PPP loans by business type.
A procedural notice explaining what PPP borrowers must do if they or their lender made an application error that resulted in a borrower receiving a PPP loan amount that exceeds the borrower’s correct maximum loan amount.
A procedural notice establishing the requirements and processes for borrower resubmission of a loan forgiveness application using SBA Form 3508S when forms 3508 or 3508EZ were previously submitted.
Second-draw calculations guidance
The second-draw calculations guidance is structured in the form of 24 questions and answers addressing a variety of situations involving different types of organizations. Eight questions deal with how to determine if a PPP borrower experienced the 25% decline in gross receipts required to apply for a second PPP loan of up to $2 million. The other 16 questions handle how a PPP borrower can calculate the maximum amount it is eligible to receive in a second-draw loan.
The guidance addresses a frequently asked question regarding the relationship between calculating gross receipts and the accounting method the borrower uses for its business. For a for-profit business, the guidance defines gross receipts as generally all revenue in whatever form received or accrued, which is determined in accordance with the borrower’s accounting method, i.e., accrual or cash.
Other topics covered include (among others):
- Documents required to corroborate a 25% reduction in gross receipts.
- Documents required to substantiate payroll costs used to determine the maximum second-draw loan amount a borrower is seeking.
- How to calculate gross receipts reduction if using annual income tax returns.
- How self-employed PPP borrowers, both those with and those without employees, should calculate a second-draw loan maximum.
- How partnerships apply for second-draw loans and how they should calculate the maximum amount for those loans.
- How S corporations and C corporations should calculate their maximum second-draw PPP loan amount.
- How not-for-profits, religious institutions, veterans organizations, and Tribal businesses should calculate their maximum second-draw PPP loan amount.
- Which set of instructions LLC owners should follow.
- How entities not in operation a full year prior to Feb. 15, 2020, should calculate a second-draw maximum loan amount.
First-draw loan calculations
The guidance explaining first-draw PPP loan calculations and documentation requirements covers 14 questions and answers. Among the topics covered are:
- How self-employed PPP borrowers, both with and without employees, should calculate a first-draw loan maximum.
- How partnerships should apply for first-draw loans and how they should calculate the maximum amount for those loans.
- How S corporations and C corporations should calculate their maximum first-draw PPP loan amount.
- How not-for-profits, religious institutions, veterans organizations, and Tribal businesses should calculate their maximum first-draw PPP loan amount.
- Which set of instructions LLC owners should follow.
- How entities and self-employed individuals not in operation a full year prior to Feb. 15, 2020, should calculate a first-draw maximum loan amount.
Which pretax employee contributions for fringe benefits that may have been excluded from IRS Form 941, Employer’s Quarterly Federal Tax Return, taxable Medicare wages and tips should be part of employee gross pay.
- How PPP borrowers should account for federal taxes when determining their payroll costs for purposes of the maximum loan amount, allowable uses of a PPP loan, and the amount of a loan that may be forgiven.
Excess loan amount errors
If an application error caused a PPP borrower to receive a larger PPP loan than it was eligible for, the SBA and Treasury have determined that the borrower may not receive loan forgiveness for any amount exceeding the allowed maximum, regardless of whether the borrower or the lender is responsible for the error. The borrower will be required to begin making payments on the remaining loan amount that’s in excess of the amount forgiven.
Borrower resubmission of a loan forgiveness application using SBA Form 3508S
A borrower that is eligible to use SBA Form 3508S, but applied for loan forgiveness using PPP Loan Forgiveness Application Form 3508EZ or 3508, may resubmit its loan forgiveness application to its lender using SBA Form 3508S at any time until the SBA notifies the lender of a final SBA loan review decision or remits to the lender the PPP loan forgiveness payment. If a lender receives a timely borrower resubmission of a loan forgiveness application using SBA Form 3508S, the lender should promptly request the withdrawal of any lender loan forgiveness decision by notifying the SBA through the SBA Paycheck Protection Platform. Resubmissions are not allowed after the SBA notifies the lender of a final SBA loan review decision or remits the PPP loan forgiveness payment to the lender.