The first Paycheck Protection Program (“PPP”) loan applications were submitted almost one year ago. Subsequently, over a thousand pages of guidance and dozens of form updates have left borrowers, lenders and advisors struggling to keep up. If you’ve raised the white flag, let’s bring you back up to speed.



April 3, 2020:                   PPP loan program commences
April 16, 2020:                 $350B allocated to the program is exhausted
April 27, 2020:                 Program is allocated $310B in additional funding
August 8, 2020:               PPP application period expires
December 27, 2020:       Federal law resurrects the program allowing some borrowers to take a second draw
March 7, 2021:                 7.5 million PPP loans have been approved for $687B. $140B remains available
March 31, 2021:               PPP application period is scheduled to expire, again


Major Changes

1. Taxation. PPP loans are now federally tax free, with many states following suit. This means that forgiven loans are not taxable income, and borrowers can deduct the expenses used with PPP funds on the tax return.

MKS: As of March 15, 2021, the Minnesota legislature has yet to conform to IRS treatment of PPP loans for tax purposes. However, we now believe it is more likely than not that Minnesota will conform.


2. Second draws. In Q1 of 2021, borrowers who had used up the funds from an initial PPP loan and had a 25% drop in revenues in any 2020 quarter compared to the corresponding 2019 quarter could apply for a second PPP loan. Additionally, borrowers who did not receive a PPP loan in 2020 could apply for a “first draw.”

MKS: If you did not receive a PPP loan in 2020 and your business is currently experiencing economic uncertainty, now is the time to apply – especially if you are self-employed or a sole proprietor that files a Schedule C (i.e. your business income and expenses are reported on your individual tax return). More on this below.


3. Expanded use of funds. Applicable to all PPP loans (former and current), 60% of the PPP expenditures must be on “eligible payroll costs,” but an extended list of non-payroll costs will allow borrowers, especially those that were operating under limited capacity during the pandemic, additional resources to allocate funds to and achieve full forgiveness.

MKS: Examples include business software/cloud services, payroll administration, human resources, covered supplier costs that are essential to the operations of the borrower (think food vendor contracts for a restaurant) and safety expenditures like PPE or capital expenses to adapt the business environment for the safety of employees or customers.


4. Forgiveness process. Borrowers have 10 months following the END of the covered loan period to apply for forgiveness. Additionally, loans under $150K now have a special form that simplifies the process (3508S).

MKS: As many borrowers can attest, the forgiveness process is confusing and cumbersome, especially if your PPP loan was through a larger institution. Do NOT rush the forgiveness process if possible. Patience has proved to be valuable, and most PPP loans from 2020 do not require a forgiveness application until well into 2021.


5. Schedule C Loan Calculation. In late February, the White House directed the SBA to allow Schedule C borrowers to calculate future PPP loans using line 7 “gross income” vs. line 31 “gross profit” on either the 2019 or 2020 tax return.

MKS: This was a huge change that allowed many sole proprietors who show little profit after “write offs” to reconsider a PPP loan. It also has disgruntled lots of borrowers who already applied for a PPP loan based off the net profit amount, given that the change in calculation is only effective for new PPP loans without an option to adjust a loan that has already been disbursed.


Additional Comments

  • There is a proposal to extend the program by 60 days, through May 31, 2021, which has the backing of most industries, save for the banks. We think this may come to fruition for two reasons. First, the program has $140B to use up in the next two weeks. Second, the new administration is focused on the smallest businesses and ensuring they have the access and time to take advantage of the program.


  • Along with the program extension, a proposal to allow an adjustment to increase previous PPP loans issued to Schedule C borrowers to take advantage of the new calculation mentioned above is being floated. This would be an incredible undertaking, but may gain traction if the program is extended by several months. Pay attention sole proprietors with previously funded PPP loans, most of you would benefit substantially from such a change.


  • PPP borrowers can now claim Employee Retention Credits (ERC). If the letters “ERC” do not ring a bell, don’t panic. These credits were virtually ignored until Congress allowed the PPP loans and the ERC to interplay in both 2020 and 2021. Refer to our website for a separate blog post on the ERC which should be on all business owner’s radar going forward due to their lucrative nature (note: the American Rescue Plan Act of 2021 has extended ERC credits for all four quarters of 2021, enhancing the payroll tax credits and making it easier to qualify for them). The big caveat here is that wages paid with PPP funds cannot be claimed for the ERC.


  • Lender participation and conformity is waning as the weeks pass. Without passing judgement, many of the larger banking institutions have found it difficult to react to the constant program changes and provide quality service to their large customer bases. Some have already stopped accepting new PPP loans, and the forgiveness process at each institution is unique, making it difficult for borrowers to apply for forgiveness. This is why we continue to stress that patience is important as it relates to forgiveness.


  • Due to the lack of precedent and unique nature of small businesses, understanding the program guidelines and easily applying them to each borrower is virtually impossible. However, we stress that the overarching theme of this program is to SUPPORT small business. With clear documentation and a good faith effort to comply with the rules, we don’t anticipate major issues for PPP borrowers now or in the future. In conversations with SBA representatives, it is clear that their main expectation of applicants is use PPP loans to keep people employed and off unemployment.
Our dedicated pandemic assistance team has and continues to support clients and referrals with PPP loan consulting. Please let us know how we can help.