Navigating next steps for the PPP loan

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Nearly 67% of organizations polled shared that they are Paycheck Protection Program (PPP) Loan recipients, based on survey responses during MIP’s hosted expert panel discussion, Accounting for 2020.


With relief in hand and the busy hustle just to get it, an overwhelming amount of organizations are now left asking themselves “now what?”

First, here’s a quick refresh of this year’s CARES Act stimulus program:

Paycheck Protection Program (PPP) 
Established by the CARES Act, the PPP loan allows small businesses and eligible nonprofit organizations to borrow money to pay employee compensation and benefits in the midst of this year’s coronavirus pandemic. Organizations could receive funds up to the lesser of 2 1/2 months of payroll expenses or $10 million, but, loan recipients must follow certain requirements for how the funds must be used and certify, in good faith, that the need for the loan is based on economic conditions and impacts from COVID-19.


So, what next? There are two key next steps to navigate for your organization – how will you account for these loans, and what to do to start the loan forgiveness process.

Accounting for the PPP Loan
Is it a loan? Or, since it is forgivable, is it a grant? Organizations may be unsure of how to account for these funds as all or a portion of may be forgivable. Our subject matter experts at Atchley & Associates LLP, a leading CPA and business advisor firm for nonprofit organizations, shares accounting options to consider:

  • Accounting for a PPP loan as a government grant
    A nonprofit organization can account for a PPP loan as a government grant if it believes the PPP loan represents, in substance, a grant that is expected to be forgiven. In accordance with Financial Standards Board (FASB) Accounting Standards Codification (ASC) 958-605, Not-for-Profit Entities – Revenue Recognition, and based on timing of recognition and whether or not the contribution is conditional or not, the PPP loan could be deemed to be a conditional grant since the loan is only forgiven if certain conditions are met.
  • Accounting for a PPP loan as debt
    Nonprofits may also elect to treat a PPP loan as debt, whereas the proceeds are treated as a liability and entities accrue for interest expense in accordance with the loan agreement.

We strongly recommend before considering either of the above, review more about each of these methods outlined by Atchley & Associates, LLP. Should you have further questions we advise you reach out to your CPA or appropriate business advisor.

Applying for Forgiveness
PPP loan recipients can apply for forgiveness at the end of their 8- or 24- week covered period (based on when loan proceeds were received). The first few simple steps to the forgiveness process:

  1. Fill out the PPP Loan Forgiveness Application, available through the SBA
  2. Submit the application to the bank that processed the loan

The rules surrounding the amount eligible for forgiveness are more complicated. Nonprofit organization loan recipients should work with their CPA on the application process, and prior to submitting the application, understand the requirements and exceptions that must be met for loan forgiveness, such as:

During the covered period:

  • At least 60% of loan proceeds used for payroll costs
  • Average annual salary or hourly wages did not decrease
  • Number of full-time employees was not reduced when compared to either periods of February 15 – June 30, 2019 or January 1 – February 2, 2020, unless at least one exception is met

Exceptions mentioned above account for your organization’s ability, or inability, to restore headcount and wages by December 31, 2020. Access more insights and information to help you account for the PPP loan, understand the rules of forgiveness, and see what additional stimulus assistance may be coming in our accompanying Accounting for 2020 guidebook.


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