Unfortunately, we’re still in the “wait and see” approach regarding the PPP forgiveness application. Most banks haven’t opened up their online portal, waiting for direction from Congress, but a few are beginning the process.
Again, 80% of the applications were for loans under $150k, so a blanket forgiveness would make a lot of sense for the SBA, who is not equipped to handle this kind of application volume… but obviously we never know when it comes to government agreeing on legislation.
We have up to 10 months to apply for forgiveness so the deadline isn’t approaching any time soon, but for those who have banks that have reached out and provided a schedule for repayment, please contact me and we’ll get the application process started. For those that have used 100% of the proceeds correctly, we’ll still stall a little (we don’t want to be the first to apply, there are sure to be many hiccups) but we’ll begin gathering the information. For those that didn’t use 100% of the proceeds, we’ll wait as long as possible to see how the government proceeds.
Either way, our goal will be to receive forgiveness by the end of the year. There has been zero talk about treating the forgiveness as it was originally written (tax free), so the entire proceeds will essentially hit your bottom line once the approval process occurs. We’ll be taking this into consideration when planning for our year-end tax liability and cash flow.
This inflated tax liability and cash flow requirement is why we continuously need to strive towards breakeven, so we don’t burn the cushion that the PPP provided earlier this year.
There will be an option to push this forgiveness into 2021, pushing our cash flow liability out to 2022. However, the government has just spent trillions of dollars on stimulus programs, so no matter who is president next year, taxes will have to increase to pay for this debt. Because of this, it will be more beneficial to recognize the forgiveness income in 2020.
There are obviously still a lot of moving parts (potentially another round of PPP proceeds!), but I’ll keep you posted with developments, and we’ll plan accordingly.
As always, please let me know if you have any questions!