The American Institute of CPAs is calling on the Small Business Administration to extend the deadline for applying for Paycheck Protection Program loans and to change its recent guidance.
The AICPA contends that the March 31 deadline is unrealistic and is creating unnecessary angst for small businesses and their accountants, and that the SBA’s recent guidance is unfair to sole proprietors. The SBA released an
The AICPA wrote to lawmakers in Congress last week asking for at least a 60-day extension on the March 31 deadline for the PPP (
Last December’s stimulus package included $284 billion for the PPP and allowed businesses to qualify for both the Employee Retention Credit and the PPP, which originally was not allowed under the program. But the SBA’s recent rules for participating in both programs are making life confusing for small businesses and the accountants who are helping them with applying for PPP loans and the forgiveness on the loans.
“The PPP has been a critical lifeline for many small businesses, especially the millions of sole proprietors that are the foundation of the U.S. economy,” said AICPA president and CEO Barry Melancon in a statement Friday. “Yet the SBA’s last-minute guidance, coupled with the unrealistic March 31 PPP application deadline, has created unnecessary confusion and anxiety. We strongly urge the SBA to revise its guidance to be retroactive and to extend the PPP application window by at least 60 days so everyone, including lenders, small businesses and the CPAs who advise them, has enough time to adapt to changing guidance and operational challenges.”
Melancon argued that the March 31 deadline doesn’t make sense. “Many PPP lenders have said that they need at least one week to update their systems for this guidance before they accept new applications,” he added. “That gives small businesses less than two weeks to submit a complete and accurate application. Also, the SBA guidance is unfair to the many sole proprietors that received a smaller PPP loan than they would now be eligible for. We have heard from many CPAs and small businesses that those who elected to apply for a PPP loan prior to the new guidance received a substantially smaller amount than those who submit an application today.”
AICPA vice president of firm services Lisa Simpson will be testifying Wednesday at a hearing of the House Committee on Small Business about the accounting profession’s perspective on the PPP, including the March 31 deadline, error codes in the SBA’s E-Tran system that have been delaying the processing of the loans, and the experiences of sole proprietors.
“We’ve communicated to the SBA about their validation checks that are holding up almost 30 percent of the applications,” Simpson recently told Accounting Today. “I don’t think it’s gone very smoothly so far.”
The fraud checks in the E-Tran system are making it harder for small businesses to receive the much-needed aid during this second round of the PPP. “It’s a lot slower to get approved for the PPP loan this year than it was in the first round,” Simpson added. “It’s our understanding that the SBA is definitely analyzing the data that they’re matching up against the database of Dun & Bradstreet and checking against the federal and state filings to make sure that the businesses are in fact valid. I’m sure they are catching more at the door, but they’re also catching a lot of borrowers who are not trying to commit fraud and are just in need of the money.”
Dueling stimuli
The recent guidance from the IRS offers more clarity on how the PPP can work with the Employee Retention Credit after Congress allowed businesses to participate in both, with some conditions attached.
“Originally under the CARES Act, when the retention credit and the PPP were enacted, you couldn’t claim both,” said Ben Aspir, a senior manager at the Top 100 Firm EisnerAmper. “If you had to pick between the two, the PPP was more favorable, because you could get dollar for dollar. Now we know if it’s forgiven and you get full forgiveness and you meet the requirements, you could deduct those expenses as well, whereas with the retention credit, when it was passed in early 2020 it was only $5,000 per employee, and you couldn’t deduct the wages.”
Under the appropriations package that Congress passed in December, the ERC was expanded to $7,000 per employee for the first two quarters of 2021, he noted. “But the big change they made retroactively going back to March 2020 was that even if you had participated in the PPP , you can also claim the retention credit,” said Aspir. “You just can’t use the same wages that you use for forgiveness as you used for the retention credit. They didn’t want you double-dipping on both the retention credit and the PPP forgiveness. What was unclear was the interaction between the PPP and the retention credit. Now that they’ve changed the rules and made them more favorable, how do clients benefit from the retention credit? With the recent guidance that came out from the notice, it’s a little more stringent than what the AICPA has requested, but at least it provides some clarity as to the mechanics of claiming. If you’ve already claimed the PPP and now you want to claim the retention credit, and you qualify, it provides clarity on the interplay between the two.”
The ability to use both programs could expand awareness of them. While many businesses understand their PPP loan opportunities, only 39 percent are aware of the ERC, according to a recent survey by payroll company Paychex. The survey found that 61 percent of PPP loan recipients characterize the 2021 PPP loan as important to their business's survival, with 56 percent of companies with between 50 and 500 employees characterizing the funds as critical to business survival this year, up from 42 percent reporting that sentiment last year.
Many small businesses are also confused about the rules for loan forgiveness in both rounds of the PPP. According to a separate survey from a different payroll provider, Gusto, uncertainty around forgiveness has hampered takeup from struggling small businesses. More than half of small businesses have yet to receive loan forgiveness for PPP 1.0, and 13.4 percent of the businesses that specifically cited a need for PPP 2.0 and meet the eligibility requirements have chosen not to apply because they fear their PPP 1.0 loan won’t be forgiven.
“We’ve heard some of our clients have submitted their forgiveness applications a while ago and they’re still waiting for a response,” said Aspir. “I would imagine it’s just because of the overwhelming amount of businesses in the country that have claimed the loans and needed them during the pandemic. It’s a matter of such overwhelming demand.“ He saw more businesses applying for the PPP last year than this year.
Approximately one-third of small and midsized businesses that are eligible and in need of PPP 2.0 have applied for it, according to the Gusto survey, but have not heard back if they are approved, creating additional uncertainty and setbacks. Gusto found wide variations in rates of forgiveness and PPP Round 2 approval by race and ethnicity. For example, 59 percent of white applicants have been approved for Round 2 loans, while those rates lowered to 51 percent, 48 percent, and 25 percent for Asian or Pacific Islanders, Hispanic or Latino, and Black or African American business owners, respectively.
The revenue-reduction criteria from the SBA may have missed the mark for many PPP loans, leaving many deserving businesses out of the program. The 25 percent revenue reduction requirement proved to be a major obstacle for many small businesses that have needed aid. Forty-four percent of small businesses that did not apply said it was because they have not experienced the required gross revenue reduction, and 42 percent of businesses in hard-hit industries were left out because of this requirement. Many of these businesses are still struggling — dealing with significant increases in operating costs that have reduced net income but not affected gross revenue — but they have been left out of PPP 2.0.
Three-quarters (75 percent) of SMBs pursuing PPP 2.0 don’t believe the aid will be enough to help them make it to July, according to the Gusto survey, when most public health experts expect vaccine distribution to reach a significant part of the U.S. population. Newly created businesses in 2020 may be more likely to fail because they aren’t currently eligible for PPP lifelines that are available to other businesses, with 80 percent of these businesses saying that they needed or would have applied for a PPP loan if they were eligible.
