[Expert Interview] PPP Loan Forgiveness Update: What We Know and What We Do Not Know

by | May 11, 2020

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What We Do and Don’t Know

Many churches have applied for and received the PPP loan funds. As leaders begin to use those funds, everyone is curious about how to ensure the PPP loan is forgiven. Joe Park, CEO of Horizons Stewardship, and Stan Reiff, Partner and Consulting Practice Lead for CapinCrouse, discuss a number of SBA updates and questions from church leaders with respect to loan forgiveness as well as direct questions from church leaders.

During this interview, you’ll learn:
  • What updates have been issued from the SBA with respect to PPP loan forgiveness.
  • How to be prepared for the final loan forgiveness specifications once issued.
  • The best practices for churches with respect to documentation to support loan forgiveness.
  • What we know about “Good Faith Certification” and needs-based testing.
Watch the Interview Now

What is the relationship between PPP loan funds and loan forgiveness?

Every word in the “PPP loan” title is important. PPP stands for Paycheck Protection Program. It is a loan intended to help businesses and organizations retain employees during the period of social distancing restrictions. It may be forgiven, but it is not guaranteed to be forgiven.

What are the three key components surrounding PPP loan forgiveness management?
  1. 75 percent must be spent on payroll and benefits as defined by the program.
  2. You can only use up to 25 percent of the SBA/PPP loan on occupancy/utility expenses.
  3. You have eight weeks (56 days) from the time you receive the funding to use it towards allowable costs to stay within the forgiveness period.
What is SBA FAQ #31?

It is guidance from the SBA on the “Good Faith Certification” of need PPP borrowers made as part of their application. It reminded borrowers to review the requirements for certification on the borrower application. The SBA has extended the date for this safe harbor return of funds from May 7 to May 14.

What new elements are introduced by this “Good Faith” standard to determine need?

In summary, they are as follows:

  • An organization’s “current business activity” (currency element)
  • An organization’s “ability to access other sources of liquidity sufficient to support … ongoing operations” (alternate sources of liquidity)
  • Access to alternative sources of liquidity “in a manner that is not significantly detrimental to the business” (significant detriment element)
What does this mean for church leaders with respect to best practices to prepare for the PPP loan forgiveness process?

SBA’s guidance did not define the liquidity test or significant detriment. While we are waiting for further clarification, there are steps you can take now to build your case for loan forgiveness. CapinCrouse is recommending including these documentation elements:

  • Record what made you seek the loan.
  • Identify the criteria you used to arrive at a leadership decision to apply for the loan.
  • Document your sources of liquidity and the function of each of those funds at the point of application.
  • Track current giving and identify any variance or volatility that provides evidence of uncertainty or changes to contribution patterns that might contribute to uncertainty.
  • Itemize all expenses paid with PPP loan funds. Include documentation related to new or additional expenditures to adapt your ministry and outreach efforts.
Will churches be subject to the Uniform Guidance Compliance Audits (UGCA)?

Per FAQ #43 from SBA, all PPP loans are not subject to UGCA. However, Economic Injury Disaster Loans (EIDL) are subject to UGCA. So, most churches will not be subject to UGCA.

Is there any potential for churches to incur criminal prosecution for taking PPP loan funds?

The criminal prosecution potential is very low. It’s unlikely to apply to loans less than $2 million, given The Treasury Department’s statement that PPP loans of $2 million or more will be subject to an audit as part of the forgiveness process.


Disclaimer: Horizons Stewardship is not a licensed CPA or law firm. Please seek counsel from your CPA or attorney to address any specific needs you might have. If you don’t have a professionally licensed resource or wish to simply secure additional help to manage through this process, feel free to reach out to CapinCrouse, the largest accounting and audit firm serving churches and faith-based nonprofits.


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