Many eligible nonprofits applied for and received Paycheck Protection Program (PPP) loans. We know that following the changes in rules and updated guidance that has been released since the program’s inception has been a bit chaotic, and at times overwhelming. There are unique considerations for nonprofit entities to evaluate to ensure proper spending of PPP funds, appropriate accounting for these funds, and maximizing loan forgiveness. Adequate planning will help ensure your organization doesn’t get caught off-guard with a potential repayment. Below is a quick information guide to assist nonprofits during the navigation of this process.
- If your organization received a PPP loan prior to June 5th you are allowed to choose either an 8 week or 24 week covered period. All PPP loans issued after June 5th have an automatic 24 week covered period. Funds must be spent by December 31, 2020 (even if your 24 week covered period extends past the end of the year).
- Eligible costs:
- At least 75% of the funds must be spent on qualifying payroll costs to obtain full forgiveness.
- Payroll costs including wages, retirement, and health insurance contributions.
- Non-payroll costs including lease, interest, and utility payments. Non-payroll costs must have been in service on February 15, 2020, and there are additional limitations for related party lease payments.
- Full-time equivalents (FTE) must be maintained during the covered period as compared to a chosen reference period. There are safe harbors that may apply to eliminate a reduction of forgiveness based on FTE levels.
- Loan terms for repayment of PPP loans not eligible for full forgiveness:
- Loans received prior to June 5, 2020, have a two-year maturity that may be extended to five years upon lender approval.
- Loans received after June 5, 2020, have a five-year maturity.
- All loans have an interest rate of 1%.
- Payments are deferred for 10 months following the end of the covered period. You may apply for forgiveness up until the maturity date of your loan. Interest accrues from the date of the disbursement of your loan.
- Loan forgiveness will be reduced by any EIDL advance (up to $10,000) received.
- Review the loan forgiveness application for a complete list of documents that are required to be submitted with your application and work on compiling the information sooner than later.
- Several bills in Congress have been introduced to address the forgiveness application process. There is potential for loans under $150,000 to either receive automatic forgiveness or become eligible for a simplified application. Your organization should discuss whether waiting for the outcome or approval of this bill is appropriate.
Accounting and Reporting:
- PPP loans are not subject to Single Audit requirements under Uniform Guidance.
- No double-dipping! If you receive other government grants or funding that covers costs eligible under the PPP loan, you may not charge the same costs to both programs. Consider setting up appropriate classifications in your accounting software to properly track PPP loan activity so costs are only allocated to one program.
- The AICPA released guidance related to borrowers accounting for PPP loans; which includes two options for accounting for PPP loans. You may either account for the PPP loan as a financial liability in accordance with FASB ASC 470 or as a conditional contribution in accordance with FASB ASC 958-605. Use the second option only if you expect loan forgiveness.
Guidance can change with the PPP program daily. It is important to be aware of new regulations and rules as they are issued and work with your lender and/or CPA as you apply for loan forgiveness. Our PPP experts have carefully reviewed the provisions of the program and the loan forgiveness application. Please contact the Nonprofit Specialty Team at Anderson ZurMuehlen if we can be of any assistance to you during this time.