We know that many of our readers are about to seek forgiveness for their PPP loans and make decisions about how the funds will be presented in their financial statements. So we asked our trusted friends at Fiscal Management Associates (FMA), Senior Consultants Gina McDonald and Tony Bowen, the burning questions in all of our minds.
Where are most nonprofits at this point in the year when it comes to managing their PPP loans and applying for waiver?
Most of the nonprofits we’ve worked with were able to secure loans between April and early June. One of the changes to PPP in early summer was that companies could choose whether to issue their loans over either an eight week period or a 24 week period. In PPP terms, this is the “covered period”. With many opting for the 24-week period covered, it means that most organizations will have used PPP funds by mid-November, if not sooner, and most are ready to seek forgiveness. We are now seeing an increase in nonprofits seeking forgiveness, with some already being notified by their lenders that they have received full forgiveness, which we would like to see.
A few reminders: When organizations are ready to apply for forgiveness, they should verify that their lender is ready to accept applications and make sure they understand their lender’s process. If you’re not ready to ask for forgiveness just yet, don’t worry. Borrowers effectively have up to 10 months from the end of their coverage period to seek forgiveness without facing any penalty.
What updates from the Small Business Administration (SBA) or Congress should nonprofits be aware of regarding PPP?
Since July, things have been going quite slowly with the new PPP guidelines. Congress has not passed new laws to simplify the process of PPP forgiveness (or to automatically grant loans below a certain size) or to provide a second round of PPP for those organizations still suffering from this economic crisis. We’ll have to see what happens over the next few weeks when Congress debates another round of COVID relief.
The biggest changes to the SBA that apply to nonprofits are:
- There is a new, streamlined application for forgiveness for organizations with loans of $ 50,000 or less. While no automatic apology is provided, it is a simple form that requires backup documentation and does not penalize companies if they have had to cut staff or wages during their covered period.
- For those with $ 2 million in credit, all of whom are undergoing scrutiny, there is a new Credit Requirement Questionnaire for businesses to complete, which asks many detailed questions about an organization’s financial data and its response to COVID. But many question the information requested, including 82 national organizations that sent a joint letter against many components of the questionnaire.
- In response to a lawsuit, the SBA has published details of all PPP loans available here SearchPPP.com.
What problems do nonprofits face when dealing with forgiveness?
The most common questions we received are:
We are ready to apply. How do we start?
The SBA has a quick fact sheet on the steps. You will first see whether your lender starts processing applications and whether they are using an online portal or accepting applications by email. You will complete the application including some calculations, collect backup documents and submit the required information to your lender. They will then review your application and, when it is ready, send it to the SBA for review.
Which application form should I use?
There are three forms to choose from: Streamlined, EZ and Standard. They are all available on the Treasury and SBA websites along with separate instructions, and some lenders have turned these forms into questions on their online portals.
Optimizing is easy – did you have a $ 50,000 loan or less? It is not that easy to understand whether you can use the EZ by looking at the specific criteria for using the form. it requires some interpretation. Filling out the EZ form also requires a number of calculations and security documents. While others may qualify, development cooperation is generally best suited for companies that have not reduced their employees’ salaries / hourly rates and nobody left the organization in 2020. So if you are not sure whether you can use the EZ after looking through the instructions or our guide, we recommend that you use the standard application.
How do I calculate FTEs?
There are a number of places in the applications where companies are required to indicate the number of full-time equivalents (FTE) they have had at different points in time. This is not the same as “head count”. Calculating FTEs can be confusing, and the SBA has two calculation methods that nonprofits must choose from. One method that gets more attention, especially among employees with a large number of hourly workers, is the Simplified Method, where someone paid for 40 or more hours is 1.0 FTE and anyone under 40 is 0.5.
We have several resources on the PPP toolbox to help understand and calculate FTEs, including an average FTE calculator. We encourage organizations to check that their payroll provider has auto-generated PPP allocation reports to show how much was spent on payroll during the period covered and to calculate FTEs.
We are given limited funding to cover similar expenses that PPP could be used for. Does this mean we cannot receive complete forgiveness?
To help nonprofits with this issue, we’ve released a guide on how to deal with the interaction of limited funding and PPP on our PPP toolbox. You should make sure that you are not double-dipping, that is, claiming exactly the same expenditure as a reduction in expenditure from more than one source of income.
However, the good news for many nonprofits is that even if you’ve received both limited funding and a PPP loan, you may still be eligible for full forgiveness. Why? PPP should only cover about two months of specific wage and material costs. So we see some nonprofits using their limited grants to cover what PPP couldn’t cover, be it for salaries or other major expenses required to run programs. Given the “24 Week Coverage Period” option, we also see nonprofits spending their PPP funding down.
With some nonprofits that receive a significant portion of the limited funding, you may still have to repay a portion of the PPP loan, but we recommend that you create a schedule that shows what funding sources have been used to cover what specific expenses before assuming you need to to reduce the PPP award amount.
What other issues related to PPP do nonprofits face in addition to completing the application for forgiveness?
A major issue that nonprofits grapple with is how their PPP loan shows up on their financial statements, and how they then explain the implications to their boards of directors and their donors. For many, it leads to results that don’t really reflect the real health of an organization.
In the background, most companies have options for reporting on PPP in this year’s audited financial statements. To put it simply, what could be a very complicated topic, if a nonprofit waits for their lender to officially report the results of the forgiveness to them before recognizing PPP funds as revenue, their PPP loan will likely end up as debt at the end of the year . Balance sheet. In a second option, a nonprofit may choose to treat PPP as a conditional contribution and record the revenue if the nonprofit believes it has met the PPP conditions for issuing an enactment, even if it does Has not yet received results from the lender.
For some organizations, especially those who choose the first option, it means they will have spent the income from PPP in one fiscal year and receive their award results in the next fiscal year – which results in some nonprofits in the year in using PPP, deficits and possibly a surplus the next fiscal year. The second related issue is financial planning for life after PPP. Procuring PPP has been a vital lifeline to ensuring employee pay when other revenue streams are challenged or eliminated – but what happens afterward? For organizations that have just made ends meet with PPP, they may still need to think about reducing staffing costs and other expenses as income from personal activities, fundraisers, and other sources may still be slowly spinning up again.
Since the start of the procedure, the FMA has regularly updated its PPP toolbox with guides on a range of topics including one-pagers on areas relevant to nonprofits, PowerPoint decks breaking down the SBA guide, and Excel-based tools for calculating forgiveness. They continue to offer for free Live clinics and provide access to FMA experts for non-profit organizations to ask their relevant PPP questions via their email help desk, [email protected]. This autumn, the FMA has the PPP award initiative for racial justice (PPP FREE) to provide tailored advisory support to complement PPP Toolbox resources for organizations run by BIPOC Identified Individuals as well as organizations where BIPOC Identified Individuals manage the PPP process. You can Read more about this initiative here.