06/24/20 – PPP Forgiveness Applications

The SBA issued 2 new sets of guidelines on June 23 and 24th that have provided some of the answers we’ve been waiting for. We’ve summarized the main points below.

  • Submitting an application—The SBA has stated that a borrower may apply for forgiveness at any point during their 8- or 24-week covered period. The deadline for applying is 10 months after the last day of the borrower’s covered period. This means that borrowers may apply for forgiveness as soon as their funds are completely spent. However, there is nowhere on the application to indicate the date which the borrower is using to cut off the covered period. For example, if the funds are used by the 12th week, but the borrower doesn’t submit the application until the 16th week because of the time it takes to complete the complex calculations on the application, does the borrower still use week 12 as the cut off? This distinction could be important if the FTEs were not reduced as of the 12th week but are reduced as of the 16th week.
    • The lender will have 60 days from the submission date to issue a decision to the SBA regarding the amount of loan forgiveness.
    • The SBA then has 90 days to review the application and remit the forgiveness amount to the lender.
  • Owner compensation—The SBA clarified owner compensation limits by entity type. All owners will be capped at the lesser of the applicable portion of their 2019 compensation or $15,385 for 8-week periods/$20,833 for 24-week periods.
    • C corporation owner-employee—compensation capped by the amount of 2019 cash compensation (defined below) plus employer retirement and health insurance contributions made on the owner’s behalf.
    • S corporation owner-employee—compensation capped by the amount of 2019 cash compensation (including self-employed health insurance added to the W-2) and employer retirement contributions made on the owner’s behalf.
    • Schedule C or F filers—compensation capped based on 2019 net profit.
      • Retirement and health insurance benefits are already included in net profit, so they cannot be separately added to the payroll calculation.
    • General partners—compensation capped at 92.35% of the amount of their 2019 net earnings from self-employment (which are reduced by any section 179 deduction).
      • Retirement and health insurance benefits are already included in net profit, so they cannot be separately added to the payroll calculation.
    • 2019 cash compensation or net earnings is defined as follows—
      • For 8-week covered periods: 2019 gross wages/net earnings/net self-employment income divided by 52 times 8
      • For 24-week covered periods: 2019 gross wages/net earnings/net self-employment income divided by 12 times 2.5
  • Applying FTE and Salary reductions– If the borrower applies for forgiveness prior to the end of the 8- or 24-week period, the SBA will treat any FTE or salary reductions incurred through the time the application is submitted as a reduction for the entire 24 weeks.
    • ExampleA borrower is using a 24-week covered period. This borrower reduced a full-time employee’s weekly salary from $1,000 per week during the reference period to $700 per week during the covered period. The employee continued to work on a full-time basis during the covered period, with an FTE of 1.0. In this case, the first $250 (25 percent of $1,000) is exempted from the loan forgiveness reduction. The borrower seeking forgiveness would list $1,200 as the salary/hourly wage reduction for that employee (the extra $50 weekly reduction {$1,000 original pay – 700 COVID pay = $300 reduction – $250 exemption = $50} multiplied by 24 weeks). If the borrower applies for forgiveness before the end of the covered period, it must account for the salary reduction for the full 24-week covered period (totaling $1,200).
    • The guidance does not specifically address what borrowers should do if they didn’t reduce salaries or FTEs prior to applying for forgiveness but did reduce one or both after submitting the application. However, if you extrapolate from the previous example, it would follow that if the borrowers did not have any reductions prior to applying for forgiveness, then it would be assumed they had no reductions for the entire 24-week period.
  • Documentation requirements for FTE reductions—The SBA listed specific documents a borrower needs to keep related to FTE reductions if an exemption applies.
    • If a borrower offers to rehire an employee and is rejected, the borrower needs to notify the state’s unemployment insurance office within 30 days. Other documents the borrower needs to maintain are the written offer to rehire an individual, a written record of the offer’s rejection, and a written record of efforts to hire a similarly qualified individual.
    • If borrowers are unable to maintain their FTEs because they are unable to return to the same level of business activity as they were at before February 15, 2020 due to government mandates, they need to have copies of applicable COVID Requirements or Guidance for each business location and relevant borrower financial records. This guidance includes any mandate issued between March 1, 2020 and December 31, 2020 by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention (CDC), or the Occupational Safety and Health Administration.
  • Lender requirements—the SBA further defined the role of the lender in the forgiveness process. “Providing an accurate calculation of the loan forgiveness amount is the responsibility of the borrower, and the borrower attests to the accuracy of its reported information and calculations on the Loan Forgiveness Application Form. Lenders are expected to perform a good-faith review, in a reasonable time, of the borrower’s calculations and supporting documents concerning amounts eligible for loan forgiveness. For example, minimal review of calculations based on a payroll report by a recognized third-party payroll processor would be reasonable. By contrast, if payroll costs are not documented with such recognized sources, more extensive review of calculations and data would be appropriate. The borrower shall not receive forgiveness without submitting all required documentation to the lender.” The guidance goes on to state that the Lender will confirm a number of calculations on the application by reviewing the corresponding documentation but may rely on borrower representations.

In other news, the SBA also issued a statement that they will disclose the business name, address, NAICS code, zip code, business type, demographic data, non-profit information, jobs supported, and loan amount range for any loans greater than $150,000. The loan ranges they are using are below.

  • $150,000-350,000
  • $350,000-1 million
  • $1-2 million
  • $2-5 million
  • $5-10 million

Feel free to reach out to us with any questions you may have. If you haven’t applied for a PPP loan yet, there’s still time. Applications are available until June 30th and can be found here.