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PPP Loan

Why Some Businesses Are Hesitant To Apply For PPP Loan Forgiveness 

This week, the Small Business Administration opened up their forgiveness portal for the Paycheck Protection Program (PPP) loans. The CARES Act initially made these loans available for small businesses who were struggling to stay afloat during the pandemic. The Act went into effect in the beginning of April, and since has dealt out more than 5 million approved loans which equated to $525 billion. 

To qualify, small businesses had to show that at least 60% of the loan would be going towards payroll costs for employees. The repayment terms of these loans are also relatively casual in terms of federal loans, as most firms will only pay an interest rate of 1% and have at least a six-month grace period before needing to start payments. Loans that were given before June 5th must be repaid in two years while those dealt out after have five years. 

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Even with all of these seemingly attractive qualities, accountants nationwide are noting that many small businesses are choosing to sit out this round of PPP loans after the initial round of loans began going more towards large corporations and wealthier employers who didn’t really need the financial support as badly. 

Additionally, many small businesses are still asking Congress the same question in regards to these loans with no real answer: will expenses covered by these PPP loans be deductible on future tax returns? Ann Kummer is a Certified Public Accountant in New York who claims to be giving a lot of her clients the advice to wait before applying for a federal loan. 

“My advice to all of these clients is that you don’t want to be the first to rush into the forgiveness process. Things will probably continue to change, do you really want to be the guinea pig?”

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Many small businesses feel the same way, especially considering so much change has already occurred in terms of the pandemic and its impact on the economy. There’s still no word from Washington D.C. on what the next Covid-19 relief bill will look like either, something many Americans have yet again been waiting for. 

According to the IRS, forgiveness of the loan will be tax-free, but business owners who take out a PPP loan will not be able to write off expenses that in any other context would be deemed deductible if they use the PPP funds to cover that cost. However, many Congress members disagree with the IRS’ claims and want small businesses to be able to deduct those costs, making this one of the many points of contention that’s delaying the release of another relief bill. 

Overall, many business experts and accountants nation-wide are urging their clients to hold off and wait in terms of applying for one of these PPP forgiveness loans. While many businesses are suffering now, depending on how much this loan program changes the damage could become a lot worse for them down the line. 

Experts recommend that all businesses maintain a separate business account for all of their loan proceeds so they’re able to see exactly what they’re receiving and when they are spending it. Additionally all businesses should maintain any and all documents that show how their funding has been spent throughout the duration of the pandemic. This way, no matter how much the pandemic and the forgiveness program changes in the coming months, businesses will have a formal record of spending and receiving.