Lender accounting for PPP loans prior to loan repayment or forgiveness


Authored by RSM US LLP

The Coronavirus Aid, Relief, and Economic Security Act established the Paycheck Protection Program (PPP), which is administered by the U.S. Small Business Administration (SBA), to provide loans to qualifying entities. Under this program, a qualifying entity may apply to an SBA-approved lender for a federally guaranteed loan to help offset certain payroll and other operating costs (e.g., rent and utility costs). The loan and accrued interest, or a portion thereof, is eligible for forgiveness by the SBA if the qualifying entity meets certain conditions. Whether an entity qualifies for a PPP loan, and whether it meets the necessary conditions for forgiveness, requires careful consideration of the PPP requirements and the individual entity’s facts and circumstances.

Depending on those facts and circumstances, a PPP loan is meant to be settled through forgiveness and payment by the SBA to the lender, payment by the borrower to the lender or a combination of both. To the extent a lender determines that a PPP loan (or some portion thereof) is eligible for forgiveness, the question arises as to how the lender should account for the loan until it is forgiven and repaid by the SBA.  As discussed in our white paper, Coronavirus: Financial reporting considerations, a lender’s accounting for a PPP loan depends on whether the lender classifies the loan as held-for-investment or held-for-sale, or elects the fair value option to account for the loan. Recently, the American Institute of Certified Public Accountants issued Q&A Section 2130.45, which indicates that PPP loans should continue to be accounted for by the lender as interest-bearing loans through settlement (i.e., forgiveness and payment by the SBA and [or] payment by the borrower). The Q&A also indicates that payments received from the SBA related to PPP loan forgiveness should be considered prepayments.

For additional discussion about the accounting for PPP loans from both the lender’s and borrower’s perspectives, refer to our white paper, Coronavirus: Financial reporting considerations, which also includes detailed discussion of other financial reporting issues related to the coronavirus pandemic.