Lender accounting for PPP loans prior to loan repayment or forgiveness
FINANCIAL REPORTING INSIGHTS |
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.
This article was written by RSM US LLP and originally appeared on 2020-09-10.
2020 RSM US LLP. All rights reserved.
RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each is separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/about us for more information regarding RSM US LLP and RSM International. The RSM logo is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.
Gallagher, Flynn & Company, LLP is a proud member of the RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.
Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise and technical resources.
For more information on how Gallagher, Flynn & Company, LLP can assist you, please call (802) 863-1331.