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Paycheck Protection Program (PPP) Loan Forgiveness Interim Final Rules Released

Anchin AlertJune 26, 2020
Paycheck Protection Program (PPP) Loan Forgiveness Interim Final Rules Released

Additional guidance has been released on the PPP Loan Forgiveness process. This guidance is critical to converting PPP Loans into the “grants” that many businesses need to survive. Carefully following the guidelines will allow you to maximize loan forgiveness.

On June 23, 2020, the Treasury and Small Business Administration (SBA) released the Interim Final Rule (IFR) providing updates to the PPP loan program enacted by the PPP Flexibility Act.  Below, we list critical updates that borrowers should carefully review, some of which were highlighted in our Anchin Alert dated June 8, 2020, immediately following the enactment of the PPP Flexibility Act. 

Anchin will also be presenting an update on PPP loan forgiveness in a webinar scheduled for Wednesday, July 1, 2020 at 10:30am.  You may register for our upcoming webinar here.  

Key Updates:

1. The Covered Period during which loan proceeds must be spent in order to be eligible for full loan forgiveness has been extended from 8 weeks to 24 weeks, but may not end later than December 31, 2020.  Borrowers that received their loan prior to June 5, 2020, may elect to use the 8-week Covered Period.

2. In order to be eligible for forgiveness of the full PPP loan amount, the IFR specifies that a borrower must now spend at least 60% of the loan proceeds on payroll costs.  This threshold was previously 75%. The 60% rule applies to both the 8-week and 24-week Covered Periods.

3. For PPP loans originated on or after June 5, 2020, the minimum maturity is five years.  Loans originated prior to this date have a two-year maturity.  However, the IFR permits lenders and borrowers of loans originated prior to June 5, 2020 to extend the two year maturity date by mutual agreement.

4. A borrower may apply for loan forgiveness any time on or before the maturity date of the loan, including before the end of the Covered Period, if the borrower has used all of the loan proceeds for which they are requesting forgiveness (i.e., a borrower can file its loan forgiveness application before the end of the 8-week or 24-week period). If a borrower does not apply for loan forgiveness within 10 months after the last day of the covered period, the loan is no longer deferred and the borrower must begin paying principal and interest. You should consider whether you have restored your employee levels and compensation as described in Item 6 below as part of determining when you apply for loan forgiveness.

5. In order to receive loan forgiveness, a borrower must complete and submit a loan forgiveness application to its lender.  This application is SBA Form 3508, 3508EZ (if applicable), or the lender’s equivalent.  Borrowers should check with their lender to determine whether the lender has their own form. The lender has up to 60 days to review the application and issue a decision to SBA, and request payment for the forgiven amount. The SBA then has up to 90 days to review the loan application and remit the appropriate forgiveness amount to the lender.

6. The IFR provides updated guidance on the determination of whether a borrower’s loan forgiveness will be reduced for reductions in FTEs or for a reduction in the salary of any employee earning $100,000 or less during 2019, by more than 25%.

a. For purposes of determining whether a borrower has restored a reduction in FTEs that occurred from February 15, 2020 through April 26, 2020, a borrower must compare their FTEs as of February 15, 2020 to their FTEs as of the earlier of the date they submit their loan forgiveness application or December 31, 2020.  If the application is submitted prior to the end of the borrower’s 8-week or 24-week Covered Period, they would calculate their FTEs as of that date. 

b. If a borrower is subject to a reduction in loan forgiveness due to a reduction in the salary of an employee(s) earning $100,000 or less during 2019, by more than 25%, the reduction in loan forgiveness should be calculated through the end of the 8-week or 24-week Covered Period. If the borrower submits their loan forgiveness application prior to the end of their Covered Period, they would have to extend out their weekly wage reduction as if it continued through the end of the Covered Period.

7. The IFR provides additional guidance on the determination of payroll costs for owner-employees.  For borrowers that received a PPP loan prior to June 5, 2020 and elect an 8-week Covered Period, the amount of owner compensation that is eligible for loan forgiveness for owner-employees and self-employed individuals is capped at 8 weeks of 2019 compensation with a maximum of $15,385 per individual.  For all other borrowers (i.e., up to 24 weeks), the amount of loan forgiveness is capped at 2.5 months of 2019 compensation with a maximum of $20,833 per individual.

a. C-corporation owner-employees are capped at their 2019 cash compensation.  In addition, employer retirement and health insurance contributions made on an owner-employee’s behalf should be included as additional payroll costs. 

b. S-corporation owner-employees are capped at their 2019 cash (W-2) compensation, with employer retirement contributions included as an additional payroll cost, but employer health insurance contributions made on their behalf are not included because those amounts are already included in their cash compensation. 

c. Schedule C or F filers are capped at their 2019 net profit with no additional forgiveness for employer retirement or health insurance contributions made on their behalf.

d. General partners are capped at their 2019 net earnings from self-employment (reduced by claimed section 179 deduction, unreimbursed partnership expenses, and depletion from oil and gas properties) multiplied by 0.9235, with no additional forgiveness for employer retirement or health insurance contributions made on their behalf.

8. The IFR addresses an exemption to the FTE reduction calculation that was added by the PPP Flexibility Act. If for the period beginning February 15, 2020 and ending December 31, 2020, the Borrower can document:

  • An inability to rehire employees who were employed as of February 15, 2020, and
  • An inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020, or
  • An inability to return to the “same level of business activity” as such business was operating at before February 15, 2020, due to compliance with requirements and guidelines issued by Health and Human Services, CDC or OSHA during March 1, 2020 to December 31, 2020 related to certain protocols for responding to COVID-19.

The Anchin COVID-19 Resource Team continues to monitor ongoing updates to the PPP Program. To better understand how the changes impact your unique situation, please contact your Anchin Relationship Partner or our COVID-19 Resource Team at COVID19@anchin.com.

Disclaimer: Please note this is based on the information that is currently available and is subject to change. 

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