Loan Forgiveness FAQs by SBA Answer Some Questions, but Others Remain

The Small Business Administration and the Department of Treasury recently issued a set of Frequently Asked Questions about Paycheck Protection Program loan forgiveness.

Below is a summary of the key information from the released FAQs:

  • The FAQs clarified that C-corporation owner-employee health and retirement benefits are eligible PPP expenses in addition to their $100,000 salary cap. Eligible owner-employee retirement is capped at 2.5 months of the 2019 amount.
  • The FAQs also clarified that S-corporation owner-employee retirement benefits are allowed; however, no health benefits are eligible in addition to the $100,000 salary cap.
  • Retirement and health benefits for non-owners are eligible if “paid or incurred.” There is no cap on retirement benefits for non-owners like there is for owners.
  • Retirement and health benefits cannot be prepaid unless they are “incurred” during the covered period.
  • Dental and vision insurance is included under health insurance and is an eligible payroll cost.
  • For self-employed borrowers, no owner-employee health or retirement benefits are allowed in addition to the $100,000 salary cap.

The FAQs clarified several questions for borrowers about PPP; however, there are still many questions to be answered. Below, we discuss some of the outstanding questions surrounding PPP and key considerations for those waiting to apply for loan forgiveness.

Will pending legislation be approved?

There is pending legislation that could change the loan forgiveness process. Two senators introduced the “Continuing Small Business Recovery and PPP Act” on July 27, 2020. The bill, which reportedly has bipartisan support, includes several key features; it would:

  • Allow a potential automatic forgiveness feature for loans of $150,000 or less, along with a simplified process for loans up to $2 million;
  • Allow borrowers to choose any covered period ending by Dec. 31, 2020 of at least eight weeks;
  • Allow borrowers to include new qualified expenses; and
  • Provide a second round of PPP loan draws for borrowers with a 50 percent or more decrease in revenues.

Are borrowers’ eligible expenses limited to their PPP loan proceeds?

Why is this important? If the loan forgiveness application does not limit the eligible expenses to the borrowers’ PPP loan proceeds, borrowers would be able to include additional eligible expenses on their loan forgiveness application, which could significantly reduce any “penalties” associated with the full-time employee equivalent (FTE) reduction limitation.

For example, a borrower receives a PPP loan of $1,000,000. The borrower incurs $2,000,000 of eligible PPP expenses during the covered period; however, the borrower has reduced FTE employees by 50 percent. Under this scenario, if the borrower can include $2,000,000 in eligible expenses, there would theoretically be no reduction in loan forgiveness. Alternatively, if the borrower’s eligible expenses are limited to the loan proceeds of $1,000,000, there could potentially be a reduction in loan forgiveness of $500,000. Additional guidance is needed from the SBA to address this issue.

Will a tax deduction be allowed for expenses paid with PPP funds that were forgiven?

The IRS initially issued notice 2020-32 that stated a tax deduction would not be allowed for the expenses paid with PPP loan proceeds that are forgiven. Congress has mentioned an intent to change this with legislation, but it has not happened to date.

If Congress doesn’t pass legislation to make these expenses deductible, borrowers are presented with a timing issue on their tax returns. What happens when a borrower applies for loan forgiveness before Dec. 31, 2020, but receives a decision approving loan forgiveness in 2021? Presumably, the expenses would be deductible on the borrower’s 2020 and would become nondeductible in 2021. Guidance is needed from the IRS on this timing issue and whether an amended 2020 income tax return would need to be filed.

What will the SBA audit process look like for PPP loans over $2,000,000?

This has easily been one of the biggest questions since the SBA issued FAQ 31 in April. We still don’t know what this review process will look like. The SBA is expected to release their audit policies and procedures for loans over $2,000,000. It would be advantageous for borrowers to have an understanding of the SBA’s audit process before they submit their loan forgiveness applications.

(From Warren Averett)



The Catalyst Receives Grant for Small Business Training Program

As Huntsville and Madison County continue to grow, there’s been an exponential surge in small business development over the past several years.

Drake State President Dr. Patricia Sims: “More qualified workers increase the quality of life in our community.” (Photo/Lori Connors)

Here in North Alabama, small businesses and entrepreneurial ventures have been welcomed with open arms.

Economic development is essential for community growth and stability. To that end, the U.S. Small Business Administration recently awarded The Catalyst Center for Business and Entrepreneurship a $350,000 Management & Technical Assistance Program grant.

“I’m delighted to come here and participate,” said SBA Deputy District Director L.D. Ralph at the announcement hosted at Drake State Community and Technical College.

“We are excited about this endeavor,” said Drake State President Dr. Patricia Sims. “The overall, overarching goal is to meet the workforce needs and those needs are growing. We are part of the workforce solution.

“More qualified workers increase the quality of life in our community.”

Over the past 21 years, Ralph has enjoyed a strong affiliation with the Catalyst Center, then known as the Women’s Business Center of North Alabama.

“It’s been a long-term, beneficial relationship,” he said.

The program’s assistance encompasses a wide spectrum of services to include one-to-one customized coaching, business training, and networking/matchmaking opportunities. A key goal of the program is to help firms compete for federal, state and local contracts as a prime contractor or subcontractor.

To participate in the free training program, small businesses must be:

  • Owned and managed by economically and/or socially disadvantaged individuals
  • Located in areas of high unemployment or low-income
  • Certified 8(a) participant or HUBZone small business
  • Economically disadvantaged and woman-owned

Resources are provided through SBA’s network of strategic partners, including The Catalyst, Drake State Community and Technical College, Neighborhood Concepts, Regions Bank, Redstone Federal Credit Union, and Live Oak Bank.

Drake State will provide a certificate program in Entrepreneurship. Neighborhood Concepts and Redstone Federal Credit Union are partnered to provide loans through the Business Assistance Microloan Program.

Live Oak Bank will provide support to 7(j) companies relative to mergers and acquisitions and growth through contract mobilization. Regions Bank will provide facilities, coaches and assistance designed to reach low-to-moderate income entrepreneurs within North Alabama.

For information, visit