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SBA Issues PPP Loan Forgiveness Guidance

PPP Forgiveness being erased

After this article was published, the Small Business Administration (SBA) and the U.S. Department of Treasury provided additional guidance. Visit the SBA’s Small Business Payroll Protection Program web page for the latest information.

On the evening of May 22, 2020, SBA and the U.S. Treasury released long-awaited guidance on loan forgiveness under the Paycheck Protection Program (PPP). The two new interim final rules (IFRs) released Friday are the most recent and authoritative guidance to date.

The new guidance did not make changes to facets of the program that garnered the most attention: the eight-week covered period during which PPP funds must be spent to qualify for forgiveness, and the rule requiring PPP borrowers to spend at least 75% of the funds on payroll costs to qualify for full loan forgiveness. However, there are a couple of bills addressing these two issues making their way through the Senate and the House, and legislation is expected to pass soon.

As for the two recent IFRs, highlighted below are a few new areas of clarification (some of which were stated in the Loan Forgiveness Application Instructions).

Guidance on loan forgiveness

  • As stated in the Loan Forgiveness Application Instructions, established an alternative method for determining when the eight-week period for payroll expenses starts for businesses with bi-weekly or more frequent pay cycles. Borrowers can elect an “Alternative Payroll Covered Period,” which is the eight-week period starting the first date of the pay period following loan disbursement. Previously, the starting date of the eight-week period was the date of loan disbursement — which remains the requirement for all businesses with pay periods less frequent than bi-weekly.
  • Clarified that bonuses and hazard pay are eligible for loan forgiveness, as are salary, wages, and commission payments to furloughed employees. These payments cannot exceed the annual salary cap of $100,000, as prorated for the covered period.
  • Established caps on the amount of loan forgiveness available for owner-employees and self-employed individuals’ own payroll compensation. Specifically, the amount requested can be no more than the lesser of 8/52 of 2019 compensation (i.e., approximately 15.38% of 2019 compensation) or $15,385 per individual, in total, across all businesses. For self-employed individuals, including Schedule C filers and general partners, no additional forgiveness is provided for retirement or health insurance contributions.
  • Clarified when non-payroll costs must be incurred or paid to qualify for loan forgiveness. Specifically, the costs must be paid during the eight-week period or incurred during the period and paid on or before then next regular billing date, even if that date is after the eight weeks. The guidance also states that advance payments on mortgage interest are not eligible for loan forgiveness.
  • Reiterated previously announced guidance setting the rules for when employers can exclude employees who refuse to be rehired. In calculating any reduction in full-time equivalent (FTE) employees, employers can exclude employees who decline a good faith written offer to return at the same pay and hours as before they were laid off or furloughed. The guidance released Friday includes a requirement for borrowers to notify the state unemployment office of an employee’s rejected offer within 30 days.
  • Defined an FTE employee as 40 hours, and two methods for calculating FTEs for non-full-time employees.
  • Declared borrowers can restore forgiveness if they 1) eliminate any reductions in FTE employees that occurred during the safe harbor period by June 30, 2020 or earlier, and/or 2) restore employees’ salaries and wages that were reduced during the safe harbor period by June 30, 2020 or earlier. The guidance said loan forgiveness totals would not be reduced for both hours and wage reductions for the same employee.

PPP review procedures and related borrower and lender responsibilities

  • Established the SBA may review any PPP loan, regardless of size, to determine if the borrower was eligible for the loan under the CARES Act; whether the borrower calculated the loan amount correctly and used the funds for eligible costs; and whether the borrower is eligible for the amount of loan forgiveness requested.
  • Declared borrowers may request for SBA review of a lender’s denial within 30 days of receipt. The guidance also says that borrowers may appeal an SBA determination via a process for which specifics is forthcoming.
  • Required lenders to decide on loan forgiveness within 60 days of receipt of the completed loan forgiveness application. The SBA then has 90 days to review and remit the applicable forgiveness amount to the lender.
  • Clarified that borrowers may be asked questions by their lender and the SBA. If it is determined that the borrower was ineligible for a PPP loan, their loan amount will be ineligible for forgiveness. If only a portion of the loan amount can be forgiven, any remaining balance due must be repaid within two years.To learn more about this issue or to schedule a free consultation on the advantages of human resources outsourcing, contact simplicityHR.

More on PPP loan forgiveness and COVID-19

This article is for informational purposes only and does not constitute legal advice. Readers should first consult their attorney, accountant or adviser before acting upon any information in this article.

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