Over the past few months, many businesses have been fortunate to receive funds under the Paycheck Protection Program (PPP), established under the Coronavirus Aid, Relief and Economic Security (CARES) Act. Since receiving the loans, many business owners and managers have been rightly focused on how to best use the funds to support the business and maximize potential forgiveness. However, with June 30th approaching it is important for businesses to also be aware of important GAAP considerations related to the reporting and disclosure of PPP loans on financial statements.
For businesses required to provide June 30th financial statements to banks or other users, these will likely be the first statements issued since the receipt of PPP funds. This is uncharted territory for most businesses, so it is important to carefully consider reporting and disclosures related to these loans. As with many aspects of the PPP and the CARES act generally, rules and interpretations are ever-changing, so businesses must be sure to frequently check for new guidance. On June 10th, the AICPA released Technical Question and Answer (TQA) 3200.18 which addresses accounting for PPP loans, and on June 25th, the SBA released a new set of FAQs that address some of the relevant issues.
Below are some important areas to consider that will impact reporting and disclosure related to PPP loans:
- Loan Agreements: Make sure to keep a copy of the promissory note for any PPP loan received and provide a copy to your accountant.
- Debt or Grant: TQA 3200.18 indicates that proceeds from PPP Loans may be accounted for as either debt or a grant. Work with your accountant to determine what is appropriate for your business.
- Loan Origination Date: The SBA has outlined different rules for loans originated on or after June 5th, 2020.
- Term and Maturity Date: These items vary based on the loan origination date. The term of the loan is either a two-year or five-year term depending on the date of the PPP loan origination. If the loan was originated before June 5, 2020, the term is two years. These loans can be mutually renegotiated to a five-year term. If the loan was originated on or after June 5, 2020 the term is five years.
- Renegotiation: The SBA has allowed for lenders and borrowers to renegotiate the terms of any existing PPP loan to match the permitted 5-year period.
- AICPA TQA 3200.18: Click here.
- SBA Q&A Released June 25, 2020: Click here.
DISCLAIMER: The WM Daily Update COVID-19, COVID-19 Business Resources and COVID-19 Client News Alerts and other related communications are intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.