New guidance explains how lenders should account for PPP loan forgiveness

Lenders should account for the forgivable portion of a Paycheck Protection Program (PPP) loan as an interest-bearing loan until the receipt of the loan payment from the Small Business Administration (SBA), according to a new Technical Question and Answer (TQA) shared by the AICPA.

The new AICPA guidelines point out that for accounting purposes, payments received from the SBA should be treated similarly as payments received from the borrower. When payment is received from the borrower or the SBA (either full or in part) before the loan matures, the amounts received should be accounted for as a prepayment.

The guide includes a variety of questions and answers regarding PPP loan forgiveness under Section 2130, Paycheck Protection Program, on the AICPA website. Congress passed the $2.2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act – which included the PPP program for small businesses – in an attempt to cushion the impact of the COVID-19 pandemic on the U.S. economy in late March. Ever since, confusion has swirled around the filing and payment processes.

Most notable among the guide’s entries, TQA 2130.45 (Accounting for Loan Repayment or Forgiveness by the SBA) addresses how a bank should account for the portion of the loan that is eligible for forgiveness during the settlement process. It also explains the time period subsequent to the bank’s determination that the borrower is eligible for the forgiveness and through the receipt of payment from the SBA.

The guide explains that the SBA is one of the counterparties to the agreement that will repay the principal and interest on the loan if the borrower met the conditions for forgiveness.

When payment is received from the borrower or the SBA before the loan matures, the amounts received should be accounted for as a prepayment, and unamortized loan origination fees should be accounted for under FASB’s ASC 310-20 (Receivables-Nonrefundable Fees and Other Cost) the technical guide said.

If you have more questions about PPP loan forgiveness, visit the AICPA’s TQA online or reach out to a professional at KraftCPAs.

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