What to expect next for PPP loan recipients
With relief in hand, many PPP loan recipients are unsure of how to account for these funds as all or a portion of the loan is forgivable. Is it a loan? Since it is forgivable, is it a grant?
Accounting options for PPP loans to consider.
A not-for-profit entity has the option to account for a PPP loan as a government grant if it believes a PPP loan represents, in substance, a grant that is expected to be forgiven. In accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 958-605, Not-for-Profit Entities – Revenue Recognition, the timing of recognition for a contribution received depends on whether the contribution is conditional or not. If conditional, the contribution is not recognized until the conditions are substantially met or waived by the donor or granting agency. Since the PPP loan is only forgiven if certain conditions are met it would be deemed to be a conditional grant.
Not-for-profit entities may also elect to treat a PPP loan as debt if they choose not to account for it as a government grant. Under this method, the proceeds from a PPP loan are treated as a liability and entities accrue for interest expense in accordance with the loan agreement.
We strongly recommend you review more about each of these methods outlined by Atchley & Associates, LLP.
Should you need any additional information we advise you to reach out to your CPA or business advisor.
PPP Loan recipients can apply for forgiveness at the end of the 8- or 24-week covered period (based on when loan proceeds were received). To apply for forgiveness, loan recipients must fill out the PPP Loan Forgiveness Application and submit to the bank that processed the loan. The rules for the amount eligible for forgiveness are complicated and we strongly encourage recipients to work with their CPA on the application process.
In general, the following requirements must be met for loan forgiveness:
*Up to 40% of the PPP Loan can be used for rent, utilities, and interest of secured debt incurred prior to February 15, 2020.
Loan proceeds received prior to June 5, 2020: borrowers will have an 8-week covered period with an option to extend to 24-weeks.
Loan proceeds received on June 5, 2020, or later: borrowers will have a 24-week covered period.