By Glenn Carniello, CPA, CCIFP
For many borrowers, the original 8-week covered period is coming to a close over the next few weeks. With the newly-passed legislation extending the window to 24 weeks, I would like to highlight the option to elect the original 8-week period and forego the new 24-week time frame.
If you are having a year such that via primarily payroll costs and the other allowable costs you are able to spend all (or almost all) of your loan amount in the first 8 weeks, and you check all the other boxes regarding loan forgiveness (75% or more on PR Costs, < 25% compensation cuts per EE, FTE calculations, etc.) you may very well want to punch the clock on the program and be done with it. If you have a meaningful amount of loan proceeds yet to be spent at the end of 8 weeks, then choosing the 24-week time frame is likely the better option. If you are in the former camp, and even if you still might have a small portion of loan proceeds remaining and you check all the forgiveness boxes, it may make sense to use the 8-week period and apply for forgiveness.
We don’t know what the summer, into the early fall holds for business. It could hold up well or it could decline. If it declines as the year progresses, meeting the FTE and/or comp thresholds may be more challenging. As it stands now, if you finish spending the loan proceeds in say, week 10, you must wait until the end of the 24-week covered period to measure the criteria for forgiveness purposes. Additional legislation may be offered to allow borrowers to choose a custom end date to their covered period (i.e. when loan proceeds are exhausted), but until that time, it appears the end of the 24 weeks (with a safe harbor of December 31, 2020 to restore shortfalls on FTEs and comp) is what we’re dealing with.
I also advise, as you approach the end of your 8-week covered period, particularly if you will have spent the vast majority of your loan proceeds, that you work with your bank and forecast/model your forgiveness calculation. Again, if you see you’ve checked all the boxes and met all the criteria for forgiveness in this scenario, you’ll want to strongly consider electing the original 8 week covered period and be done. Your bank is the ultimate decision maker regarding forgiveness, so you should work with them to make sure everyone is on the same page.
Take the time to analyze and measure your situation and options and you’ll optimize the benefits intended to be offered by our government. Hope business is strong and things are looking better as each week progresses!
P.S. If you do elect the 24-week period, consider continuing to document all your allowable PPP expenses even after you’ve exhausted your loan proceeds for a while longer. If you keep documenting for say, another 25% to 50% above and beyond your loan amount, if an auditor comes in down the road and disallows any of your expenses, you can simply place another “stack of paper” in front of the auditor. Hopefully no expenses will be disallowed, but who knows. While you are in the mode of documenting, just stretch it out past the loan amount for that added insurance policy and level of comfort.