More Guidance on PPP Loans and Forgiveness Released

Treasury and SBA issue new guidance to clarify Paycheck Protection Program

The Treasury and U.S. Small Business Administration (SBA) issued two documents providing additional guidance on the Paycheck Protection Program (PPP) late Friday evening. One addresses the conditions for loan forgiveness and the other outlines loan review procedures and borrower and lender responsibilities.

The new guidance on loan forgiveness builds on the loan forgiveness application issued by the SBA earlier this month. Items of note include:

• An alternative method for determining when the eight-week period starts for businesses with pay cycles of biweekly or more frequent. These borrowers can elect an alternative payroll covered period, which is the eight-week period starting the first day of the pay period after they received the funds. Previously, the only starting date allowed was the day the lender disbursed funds to the borrower. (This remains the requirement for all businesses with pay periods less frequent than biweekly.)
• Bonuses and hazard pay are eligible for loan forgiveness, as are salary, wages, and commission payments to furloughed employees. The payments cannot exceed the pro-rated amount of a $100,000 annual salary.
•  Establishment of 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.
• Non-payroll costs must be paid during the eight-week period or incurred during the period and paid on or before the next regular billing date, even if that date is after the eight weeks, to qualify for loan forgiveness. The guidance also states that advance payments on mortgage interest are not eligible for loan forgiveness.
• The new guidance reiterates that employers can exclude any employees who decline a good faith offer to return at the same pay and hours as before they were laid off or furloughed in calculating any reduction in full time equivalent employees. The guidance released Friday includes a requirement for borrowers to notify the state unemployment office of an employee’s rejected offer within 30 days of that rejection.
• Definition of full-time equivalent as 40 hours and two methods for calculating FTEs for employees who are not full-time.
• Borrowers can restore forgiveness if they rehire employees and reverse reductions to salaries and wages for FTE employees by June 30, 2020. The guidance said loan forgiveness totals would not be reduced for both hours and wage reductions for the same employee.

Loan review procedures; borrower and lender responsibilities

The new interim rule regarding loan review procedures and responsibilities for borrowers and lenders states:

• The SBA may review any PPP loan, regardless of size, to determine if the borrower is eligible for PPP loans 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 it requests.
• Borrowers may appeal SBA determinations within 30 days of receipt. An appeal process will be established, with the specifics coming in a later interim final rule.
• Lenders are required to decide on loan forgiveness within 60 days of receipt of the complete application from the borrower. The SBA then has 90 days to review the loan forgiveness application.
• Borrowers may be asked questions by lenders and the SBA.
• Lenders will not be paid their fees for any PPP loans the SBA deems ineligible, including a 1-year clawback provision.

As always, additional guidance from the SBA is anticipated in the near future. Additionally, both the House and Senate are working on new bills that are expected to address the PPP and other coronavirus-related programs.

Visit the PPP FAQs page or KRS’ Coronavirus Resources Page for additional information. KRS professionals are available and happy to assist with loan and grant applications. Please contact us if you have any questions, concerns, or need advisement during this unprecedented time.