If you are a PPP borrower and have loans of less than $50,000.00, good news- the forgiveness application recently got a lot simpler. The SBA promulgated an interim rule and Form 3508S, which simply requires the borrower to self-certify that they meet the requirements for forgiveness by initialing a questionnaire and providing other vital statistics about the amount of the loan and loan number. Note that the borrower should still retain their documentation of the use of loan proceeds. Hopefully, you did this while you spent your funds earlier this year, but for example, placing the funds in a dedicated account and maintaining good payroll and rent records. There was a lot of guidance about that earlier this year.
The real rub of course, is when you will hear that your loan has been forgiven. Based upon my conversations with leading Maine loan officers this month, I wouldn’t bet on it before December 31st. While local lending institutions, who have been unsung heroes of this COVID crisis, may be processing forgiveness applications in a matter of days, they then have to forward the application on the the SBA, which has not made meaningful progress on any of the applications I have seen from major Maine lenders.
What does THAT mean? Well, in addition to the uncertainty around the election, it means that borrowers should prepare to maintain these on their books as a liability through year-end. Talk to your financial and tax advisors about whether you feel it is prudent to maintain cash reserves in the event the loan is not forgiven. In addition, we are still awaiting guidance on whether the Treasury Department will treat this discharged indebtedness, assuming it is forgiven, as taxable income. The general rule is that discharged indebtedness is treated as income for tax purposes. COVID-relief legislation was supposed to change that general presumption, but conflicting statements and legislative jockeying leave that up in the air until after the election is decided and we know who will be in charge, and then we can wait for them to tell us what they plan to do about these initiatives.
But hey, at least you small balance borrowers can get your own paperwork off pretty cheaply and quickly, right?
