1/7/21 – PPP 2nd Draw and Consolidation of Prior Interim Rules

Last night at 11:30pm, the SBA issued their latest 2 interim rules. One of them is intended to govern new PPP loans made under the Economic Aid Act as well as applications for loan forgiveness on existing PPP loans where the forgiveness payment has not been remitted. It DOES NOT alter or affect the requirements applicable to PPP loans closed prior to the interim final rule’s enactment. The biggest thing it does do is consolidate all of the old interim rules so Borrowers and Lenders only have one place to look for guidance. The 2nd interim rule provides guidance on PPP 2nd draws. The application for these 2nd draws is not available as of the date of this post. See below for highlights from both interim rules.

Items impacting 1st and 2nd draw PPP loans

  • Loan amounts: 1st and 2nd draws can be calculated based off 2019 or 2020 payroll costs.
  • Deadline: The deadline for loan applications is 3/31/2021.
  • Covered Period: The loan forgiveness covered period can be any length of time between 8 and 24 weeks. Previously, Borrowers had to choose either 8 or 24 weeks. Now the Covered Period could be 12 weeks, 14 weeks, 22 weeks, etc.
    • The alternative covered period is now eliminated since the Borrower can choose any time period within the 8 and 24 week period.
  • Forgiveness applications for small loans: Borrowers that received loans of $150,000 or less will have a simplified application. This application is not available yet.
  • EIDL Advance: The EIDL Advance Amounts no longer need to be subtracted from any amount of loan forgiveness. Any EIDL Advance Amounts previously deducted from a borrower’s forgiveness amount will be remitted to the lender, together with interest to the remittance date.
  • Uses of PPP Funds: Acceptable uses of PPP funds have been extended to include the following—
    • covered operations expenditures: Software, cloud computing, other HR/accounting;
    • covered property damage costs: Costs related to 2020 public disturbances not covered by insurance or other compensation
    • covered supplier costs: Expenditures to a supplier that are essential to the recipient’s current operations
    • covered worker protection expenditures: PPE and costs to comply with COVID-19 federal health and safety guidelines.

Items impacting 1st draw PPP loans only

  • If you are an eligible business that did not receive a PPP loan during the first application process, you’re in luck! The Economic Aid Act set billions of dollars aside for first-time PPP Borrowers.
  • Who can apply: Qualifications this time around (must satisfy ALL 5 requirements):
    • Small business; independent contractor, eligible self-employed individual, or sole proprietor; tax-exempt 501(C)(3) nonprofit organization; qualified news organization; a housing cooperative, eligible section 501(c )(6) organization, or eligible destination marketing organization.
    • Less than 500 employees (less than 300 employees for housing cooperatives, 501(c )(6) organization, or destination marketing organization).
    • Principal place of residence is in the United States.
    • In operation on 2/15/20 and had employees.
    • Must still be able to certify “that the uncertainty of current economic conditions makes necessary the loan request to support the ongoing obligations.”
      • If your PPP loan is less than $2 million, then the safe harbor applies to your loan and the SBA will deem you to have made the required certification in good faith.
  • Loan amount
    • Lesser of $10 million or 2.5 months of average payroll costs.
    • Calculation =
      • Total payroll costs from 2019 or 2020
      • Less any compensation paid to an employee in excess of $100,000
      • Divided by 12
      • Times 2.5
      • Plus the outstanding amount of an EIDL made between 1/31/20 and 4/3/20 that you want refinanced (don’t include the EIDL advance).
  • Required documentation
    • For businesses with payroll:
      • Form 941 and state unemployment returns for each quarter in 2019 or 2020 (whichever is used to calculate the loan) or equivalent payroll processor records.
      • Evidence of any retirement and health insurance contributions.
      • Payroll statement or similar document from the pay period that covered 2/15/20 to establish you were in operation on 2/15/20.
      • 2019 or 2020 Schedule C or F, if applicable.
      • 2019 or 2020 Form 1099-MISC, invoice, bank statement, or book of record that establishes you are self-employed, if applicable.
      • 2019 or 2020 Form 1065 (including K-1s), if applicable.
    • For businesses without payroll:
      • 2019 or 2020 Schedule C or F
      • 2019 or 2020 Form 1099-MISC, invoice, bank statement, or book of record that establishes you are self-employed.
      • 2020 invoice, bank statement, or book of record to establish you were in operation on 2/15/20.
  • Application to file
    • SBA Form 2483

Items impacting 2nd draw PPP loans only

  • Qualifications: (must satisfy all 4 requirements)
    • Have received an initial PPP draw
    • Have used or expect to use all funds from the first round before the expected date of the 2nd disbursement
    • Have 300 or fewer employees
    • Have at least 25% reduction in gross receipts for one quarter in 2020 compared to the same quarter in 2019
      • If annual gross receipts in 2020 were reduced by 25% or more compared to annual gross receipts in 2019 and the Borrower was in business for all 4 quarters in 2019, the Borrower can submit copies of its annual tax returns to substantiate revenue decline.
      • Gross receipts = all revenue in whatever form received or accrued from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances (per 13 CFR 121.104).
        • Total income plus cost of goods sold on your tax returns.
        • Does not include any PPP loan forgiven in 2020 or any capital gain income/loss.
  • Loan amount
    • Lesser of 2.5 months of the borrower’s average monthly payroll or $2 million.
      • 3.5 months for borrowers with NAICS code beginning with 72 (Accommodation and Food Services)
      • Farmers and ranchers payroll cost = gross income less employee payroll costs
  • Documentation requirements
    • No new payroll cost documentation required if the first draw and second draw were based off of calendar year 2019 and the Borrower went through the same Lender for both draws.
    • Loans >$150,000: support for revenue reduction. Such documentation may include relevant tax forms, such as annual tax returns, or, if relevant tax forms are not available, quarterly financial statements or bank statements.
    • Loans <$150,000: no support for revenue reduction required until forgiveness is requested.
  • Terms
    • Same as 1st draw loan terms
      • 100% guaranteed
      • No collateral will be required
      • No personal guarantees required
      • 1% interest rate
      • 5 year maturity
  • Application to file
    • SBA Form 2483-SD (NOT AVAILABLE YET)

We know we are providing a lot of information here, so, as always, feel free to reach out with any questions you have. Once the SBA has issued the application for the 2nd draw, we will let you know.

12/28/20 – Stimulus Bill and PPP Round 2

Late Sunday night, the President signed H.R. 133, which contained a number of COVID-19 relief provisions that taxpayers have been anxiously awaiting. The Act is 5500 pages long, so we’ve summarized some of the major highlights for you below. 

Paycheck Protection Program (PPP) Provisions

  • Allows a deduction for any expense used to forgive your PPP loan. Now, the loan really is non-taxable. 
  • Makes the following expenses allowable and forgivable uses for PPP funds: 
    • Covered operations expenditures. Payment for any software, cloud computing, and other human resources and accounting needs.  
    • Covered property damage costs. Costs related to property damage due to public disturbances that occurred during 2020 that are not covered by insurance.  
    • Covered supplier costs. Expenditures to a supplier pursuant to a contract, purchase order, or order for goods in effect prior to taking out the loan that are essential to the recipient’s operations at the time at which the expenditure was made. Supplier costs of perishable goods can be made before or during the life of the loan.  
    • Covered worker protection expenditure. Personal protective equipment and adaptive investments to help a loan recipient comply with federal health and safety guidelines or any equivalent State and local guidance related to COVID-19 during the period between March 1, 2020, and the end of the national emergency declaration.  
  • Allows the borrower to elect a Covered Period ending anytime between 8 and 24 weeks of the loan origination date. Prior to this amendment, the borrower *had* to use 8 or 24 weeks. 
  • Creates a simplified application process for loans under $150,000. The SBA has 24 days to create this one-page application, and the only requirements will be a description of the number of employees the borrower was able to retain because of the covered loan, the estimated total amount of the loan spent on payroll costs, and the total loan amount.  
  • Establishes a specific loan calculation for farmers and ranchers who report income and expenses on a Schedule F and were in business as of 2/15/2020. These entities may utilize their GROSS income in 2019 as reported on Schedule F.  
  • If your loan has not yet been forgiven, you can have your lender recalculate your loan to receive a larger amount. 
  • Repeals the Section of the CARES Act which required PPP borrowers to deduct the amount of their EIDL advance from their PPP forgiveness amount. 
  • Extends the Covered Period for all PPP loans through 3/31/2021. 

    PPP Second Draw 
  • Creates a 2nd loan from the PPP, called a “PPP second draw” loan for smaller and harder-hit businesses. Here are the eligibility requirements: 
    • Employ not more than 300 employees; 
    • Have used or will use the full amount of their first PPP; and 
    • Demonstrate at least a 25% reduction in gross receipts in the 1st, 2nd, or 3rd quarter of 2020 relative to the same quarter in 2019. 
    • Be businesses, certain non-profit organizations, housing cooperatives, veterans’ organizations, tribal businesses, self-employed individuals, sole proprietors, independent contractors, or small agricultural co-operatives. 
  • Loan terms 
    • Loan amount – 2.5x the average monthly payroll costs in the one year prior to the loan or calendar year. 
    • Seasonal employers may calculate their maximum loan amount based on a 12-week period beginning February 15, 2019 through February 15, 2020.  
    • New entities may receive loans of up to 2.5X the sum of average monthly payroll costs.  
    • Entities in industries assigned to NAICS code 72 (Accommodation and Food Services) may receive loans of up to 3.5X average monthly payroll costs.  
    • Businesses with multiple locations that are eligible entities under the initial PPP requirements may employ not more than 300 employees per physical location.  
    • Waiver of affiliation rules that applied during initial PPP loans apply to a second loan.  
    • An eligible entity may only receive one PPP second draw loan.  
    • Fees are waived for both borrowers and lenders to encourage participation.  
    • For loans less than $150,000, the entity may submit a certification attesting that the entity meets the revenue loss requirements on or before the date the entity submits their loan forgiveness application and non-profit and veterans organizations may utilize gross receipts to calculate their revenue loss standard.  
  • Loan Forgiveness 
    • Borrowers of a PPP second draw loan would be eligible for loan forgiveness equal to the sum of their payroll costs, as well as covered mortgage, rent, and utility payments, covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures incurred during the covered period. The 60/40 cost allocation between payroll and non-payroll costs in order to receive full forgiveness will continue to apply.  

We’re sure you have a lot of questions after reading the above… so do we! If you remember, how this process has typically gone is that the legislators pass the new law but then we have to wait for the SBA and US Treasury to interpret those laws and issue practical detailed guidance. We are once again in a holding pattern while we wait for new guidance. For now, we believe it’s in your best interest to wait on the forgiveness applications and instead focus on any developments regarding the second round of PPP funds. 

11/25/20 – Letter to Congress to Fix PPP Tax Deduction

Last week, the IRS and Treasury came out with regulations that confirmed there would be no tax deduction for any expense used to forgive Borrower’s PPP loans.  The new regulations went on to say that the income will need to be reported in the current tax year if the Borrower reasonably expects that the loan will be forgiven, regardless of whether a forgiveness application is submitted in the current year or not. What this practically means is every Borrower’s taxable income will be increased in the current tax year by the amount of their forgivable PPP loans and will be taxed at ordinary income tax rates. We believe these new rulings clearly contradict congressional intent and urge you to reach out to your members of Congress to reverse these actions. We have provided a sample letter below as well as a link to find your representatives’ email addresses. Please feel free to reach out to us with any questions you may have.

Members of Congress

I am writing you today to strongly encourage you to include in any year-end, must-pass legislation language that will allow millions of small business owners a tax deduction for expenses paid with Paycheck Protection Program (PPP) forgiven loans.

Bills have been introduced in the Senate (S.3612 sponsored by Senator Cornyn (R-TX)) and in the House (H.R. 6821 sponsored by Representative Holding (R-NC) or H.R. 6754 sponsored by Representative Fletcher (D-TX)) that would ensure that PPP loan recipients are provided the full benefits intended in the CARES Act.

All Americans have been impacted by the COVID-19 pandemic, and your actions in Congress have provided much-needed assistance to millions of struggling businesses.

It is important that you ensure that these same businesses are not also subject to additional and unexpected taxes as they continue to struggle to survive.

Borrowers who are eligible for forgiveness of their PPP loans have spent the funds as the program directed. Unless they are allowed to deduct these expenses, they may be forced to spend additional funds to pay taxes on the loan proceeds – funds they may not have. Passing this legislation as quickly as possible will provide small business owners more certainty as they focus on year-end business planning that is especially important in these challenging economic times.

11/16/20 – Form 3508S Simplified Application Video

With the release of Form 3508S, a simplified PPP forgiveness application for loans under $50,000, we thought it would be helpful to record a short video explaining who exactly qualifies for this new application and how to fill it out. The application is very easy, so you may find you can fill it out on your own. See below for our short 5-minute guide, click here for a fillable application, and click here for instructions for the simplified form. Since this video was recorded, the IRS and Treasury have come out with additional guidance regarding the tax impact of the PPP loan, which we have summarized in our 11/25 update. As always, feel free to reach out with any questions you may have.

10/08/20 – Extended Due Date for 1st PPP Loan Payment

Last night, the SBA issued a new FAQ related to the extended due date of borrowers’ first PPP loan payments. Originally, the first PPP payment was only deferred for 6 months. Many borrowers have made it through their entire 24 week Covered Period at this point and may be wondering whether they need to abide by that due date on their original loan document. However, with the passing of the Paycheck Protection Program Flexibility Act back in May, all PPP deferral periods for principal, interest, and fees were extended to the date the SBA remits your PPP forgiveness amount to the Borrower’s bank (or 10 months after the end of your Covered Period if the Borrower does not apply for forgiveness). According to the FAQ, “lenders are required to give immediate effect to the statutory extension and should notify borrowers of the change to the deferral period.” What this means is that there is nothing the Borrower needs to do in order for this extension to apply. The extension is granted automatically through the PPP Flexibility Act. Check out this article from the Journal of Accountancy for more information.

8/25/20 – Owner-Employees Defined

Last night, the SBA issued an interim rule relating to “owners” and the PPP. Below are the three main takeaways from the new guidance:

  1. A definition for “owner-employee” was finally provided. For PPP purposes only, an “owner-employee” is anyone who owns more than 5% of an S- or C-corporation.
  2.  The amount of loan forgiveness requested for nonpayroll costs may not include any amount attributable to the operation of a tenant or sub-tenant of the PPP borrower.
    1. For example, If a borrower rents an office building for $10,000 per month and subleases a portion of the space to another business for $2,500 per month, then only $7,500 of the monthly rent expense is eligible for loan forgiveness.
  3. Rent payments to a related party are only eligible for forgiveness if they satisfy the following two criteria:
    1. the rent payment is less than the amount of mortgage interest owed on the property during the Covered Period and
    2. The lease and the mortgage were entered into prior to February 15, 2020.

8/10/20 – PPP Forgiveness FAQs from the SBA

Last week, the SBA issued a set of FAQs regarding PPP Loan Forgiveness. The list contained some new information but did not address some of the most important questions Borrowers have, like what the reduction factors and wage limitations look like if borrowers apply for forgiveness before the full 8 or 24 weeks are up. With the opening of the SBA forgiveness application portal today, many Borrowers may be wondering if they should rush to be first in line to have their loan forgiven. For those Borrowers with loans under $150,000, we would highly recommend waiting since there are proposed bills in Congress that would automatically forgive those loans without having to go through the full application process. For Borrowers with loans over $150,000, we would still recommend waiting since any future guidance would likely impact you the most. This suggestion aligns with what many experts in the industry are saying.

In the meantime, we have created some additional resources to consolidate the current guidance on issues that have been consistently changing, like what the wage limitations are, which application to file, and what is included in owner’s compensation. See below for these new tools.




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.

06/21/20 – PPP Forgiveness Form 3508EZ and Owner-Employee Limitations

Within the last week, the SBA has issued a number of new documents regarding PPP Loan Forgiveness, including an “EZ” version of the forgiveness application and some of the clarifications we had been hoping for. We have summarized the main points below.

  • Owner-Employee: While the SBA still has not defined the term “owner-employee,” it did clarify what amounts paid to an S corporation owner-employee would be eligible for forgiveness–
    • Self-employed health insurance premiums that are added to Box 1 of the owner’s W-2
    • Employer contributions for retirement plans
    • Employer state and local unemployment taxes
    • Gross wages
      • Capped at the lower of $20,833 if using a 24-week Covered Period (2.5-month equivalent of $100,000 per year {100,000 divided by 12 times 2.5}) or 2.5 months of their 2019 wages (2019 wages divided by 12 times 2.5)
      • Capped at the lower of $15,385 if using an 8-week Covered Period (8-week equivalent of $100,000 per year {100,000 divided by 52 times 8}) or 8 weeks of their 2019 wages (2019 wages divided by 52 times 8)
  • Self-Employed Individuals and General Partners: The new guidance states that employer health insurance contributions and employer retirement contributions are NOT included in the forgiveness calculation. Owner compensation is limited to the lesser of
    • $20,833 if using a 24-week Covered Period (2.5-month equivalent of $100,000 per year {100,000 divided by 12 times 2.5}) or 2.5 months of their 2019 applicable compensation (2019 amount divided by 12 times 2.5) or
    • $15,385 if using an 8-week Covered Period (8-week equivalent of $100,000 per year {100,000 divided by 52 times 8}) or 8 weeks of their 2019 applicable compensation (2019 amount divided by 52 times 8).
  • Non-owner compensation: Total cash compensation for any non-owner is limited to $15,385 if using an 8-week covered period or $46,154 (100,000 divided by 52 times 24) if using a 24-week covered period.
  • Non-payroll costs: The application specifically states that borrowers are not required to report amounts that they do not want included in the forgiveness amount. This provision may be helpful if total non-payroll costs over the 8 or 24-week period exceed 40% of the total amount of PPP funds spent because it allows any expenses over that amount to be excluded.
    • It’s not clear from the application whether any payroll costs can be excluded since payroll costs are included on Line 1 of the first page of the application and the exception above specifically references Lines 2-4.

“EZ Application”

Along with updating its original forgiveness application, the SBA also issued an “EZ” Application. This shorter version is available to any borrower who meets at least 1 of the following criteria—

  1. The Borrower is a self-employed individual, independent contractor, or sole proprietor who had no employees at the time of the PPP loan application and did not include any employee salaries in the computation of average monthly payroll in the Borrower Application Form,
  2. The Borrower did not reduce annual salary or hourly wages of any employee who earned less than $100,00 in 2019 by more than 25% during the 8- or 24-week period compared to 1/1/2020 – 3/31/2020, AND the Borrower did not reduce the number of employees or the average paid hours of employees between 1/1/2020 and the end of the 8- or 24-week period. (Ignore reductions that arose from an inability to rehire individuals who were employees on February 15, 2020 if the Borrower was unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020. Also ignore reductions in an employee’s hours that the Borrower offered to restore and the employee refused), or
  3. The Borrower did not reduce annual salary or hourly wages of any employee by more than 25% during the 8- or 24-week period compared to 1/1/2020 – 3/31/2020, AND the Borrower was unable to operate during the 8- or 24-week period at the same level of business activity as before 2/15/2020 due to compliance with requirements established or guidance 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, or the Occupational Safety and Health Administration, related to the maintenance of standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19.

As always, please reach out with any questions you have.

06/11/20 – Paycheck Protection Program Flexibility Act Part 2

After business hours on Wednesday June 10th, the SBA issued their latest guidance on the PPP. Unfortunately, it didn’t answer many of the questions we had in our last post, but it did mention that they are working on revising their previous guidance and updating their application to conform with the Paycheck Protection Program Flexibility Act that the President signed June 5th. See below for a summary of the key provisions.

  • The 60% cliff was eliminated. The Flexibility Act inadvertently stated that borrowers had to spend 60% of the total loan amount on payroll costs or they would receive no forgiveness. The SBA’s latest guidance fixes this error by making the 60% limit a sliding scale again. For example, if a borrower uses 59 percent of its PPP loan for payroll costs, it will not receive the full amount of loan forgiveness it might otherwise be eligible to receive. Instead, the borrower will receive partial loan forgiveness, based on the requirement that 60 percent of the forgiveness amount must be attributable to payroll costs. For example, if a borrower receives a $100,000 PPP loan, and during the covered period the borrower spends $54,000 (or 54 percent) of its loan on payroll costs, then because the borrower used less than 60 percent of its loan on payroll costs, the maximum amount of loan forgiveness the borrower may receive is $90,000 (with $54,000 in payroll costs constituting 60 percent of the forgiveness amount and $36,000 in nonpayroll costs constituting 40 percent of the forgiveness amount).
  • Borrowers have 24 weeks to spend the funds, and loan forgiveness will be based on 24 weeks’ worth of expenses.
    • The SBA did not address whether the $15,385 payroll cost limitation is increased to $46,153 to reflect the original $100,000 wage limit over 24/52 weeks instead of the original 8/52 weeks.
  • No further updates were made to the principal and interest deferral period. Borrowers can still defer principal and interest payments until the SBA grants loan forgiveness if they apply for forgiveness within 10 months after the end of their 24-week covered period. For example, if a borrower’s PPP loan is disbursed on June 25, 2020, the 24-week period ends on December 10, 2020. If the borrower does not submit a loan forgiveness application to its lender by October 10, 2021, the borrower must begin making payments on or after October 10, 2021.
    • Interest continues to accrue during the deferral period.
    • The amount of loan forgiveness can be the full amount of loan principal and any accrued interest.
  • It looks like employee and compensation levels will need to be maintained for the full covered period (24 weeks), and documentation verifying the number of full-time equivalents as well as the dollar amounts of payroll costs, covered mortgage interest, covered rent, and covered utilities will need to be provided to the lender. We will need further guidance on this issue.
  • The SBA did not address whether borrowers could apply for forgiveness early if all the funds were used by, say, the 12th week.

We hope that future guidance from the SBA will provide more information, but in the meantime, feel free to reach out with any questions you may have.