In recent weeks, the SBA has issued various interim final rules and Frequently Asked Questions (FAQ) regarding the PPP loan program. Additionally, there have been discussions between the Treasury Department and various Congressional representatives regarding possible changes to the program. We are currently watching any developments closely. We are providing updates below regarding the PPP program and loan forgiveness information as the information is known to us on August 17, 2020.
PPP Program Now Officially Closed
The SBA is no longer accepting PPP applications for loans as of August 8, 2020. Though the program was initially set to expire on June 30th, Congress passed an extension in early July to give borrowers until August 8th to apply.
PPP Forgiveness Applications Platform
The SBA has provided borrowers with the choice of two different application forms, the Form 3508 or 3508EZ. Additionally, the SBA allows for lenders to create their own application. Form 3508EZ is a simplified form to be used by self-employed individuals without employees, businesses who did not reduce the number of employees, hours worked, and/or salary or wages paid to employees, or those businesses who did not reduce salary or wages and were unable to be open due to compliance with a federal government order. You can find the applications and instructions as follows:
The SBA opened its PPP Forgiveness Platform as of August 10th, enabling lenders to begin submitting forgiveness decisions for approval. While lenders, not borrowers, are responsible for submitting the information to the SBA, borrowers are directly impacted as their forgiveness determination cannot be finalized until the SBA receives and approves the lender’s forgiveness determination. Lenders are required to make a decision regarding the forgiveness, and submit such decision to the SBA, within 60 days of receipt of the borrower’s forgiveness application. The SBA then has 90 days to review and remit the forgiveness amount plus accrued interest to the lender on the applicant’s behalf.
We continue to encourage borrowers to discuss the loan forgiveness process with their lenders, as many lenders are opting not to file forgiveness applications as they await Congressional action that may simplify the PPP forgiveness requirements. In addition, depending on the borrower’s circumstances it may be beneficial to postpone filing the forgiveness application in order to maximize forgiveness.
The SBA has recently issued a series of FAQs specifically relating to PPP loan forgiveness. A number of the FAQs provide welcome answers to questions that have plagued both borrowers and lenders since the program was first announced in the spring. Below we have highlighted a number of the key issues addressed, though for additional guidance the full list of FAQs can be found HERE.
General Loan Forgiveness
- Lenders may accept scanned copies of signed loan forgiveness applications and the supporting documents required to meet loan forgiveness documentation requirements. Borrowers should consult with their specific lenders to determine their policies for gathering the required signatures and documentation.
- As addressed in previously issued guidance, a borrower who submits its loan forgiveness application within 10 months of the end of the covered period will not be required to make any payments on the loan until the SBA makes a determination regarding the loan forgiveness amount. The lender is responsible for informing the borrower of the SBA’s decision and the date on which the borrower’s first payment is due, if any.
- In addition to salaries and wages, borrowers can receive forgiveness for lost tips, commissions, bonuses and hazard pay paid to employees during the covered period, to the extent total annualized cash compensation per employee doesn’t exceed $100,000.
- Only the portion of healthcare benefits paid or incurred by the borrower and not the employee are eligible for loan forgiveness. Forgiveness will not be granted for healthcare benefits paid during the covered period for insurance coverage in a future period. In other words, a borrower cannot artificially inflate payroll costs by prepaying healthcare benefits during the covered period.
- Note: in a recent update to the Payroll Protection Program Loan FAQs (HERE) the SBA clarified that payments for healthcare benefits include insurance premiums as well as vision and dental benefits.
- The employer portion of contributions to employee retirement plans paid or incurred during the covered period will be eligible for loan forgiveness. Forgiveness will not be granted for contributions accelerated from outside of the covered period.
- In determining forgiveness, owner-employees and self-employed individuals are capped at $20,833 ($15,385 if using the 8-week covered period) of payroll compensation across all businesses in which they have an ownership stake. The determination of owner compensation is dependent on the entity type – see the FAQs for more detail on the calculations for each type of entity.
- Interest expense on unsecured credit is not eligible for forgiveness. Only interest expense on business mortgages (secured by real or personal property) are eligible for forgiveness.
- Lease payments on a lease that existed prior to February 15, 2020 that expired and was renewed on or after February 15, 2020 are eligible for forgiveness.
- Mortgage interest payments on a mortgage that existed prior to February 15, 2020 and was refinanced on or after February 15, 2020 are eligible for forgiveness.
- The CARES act stated that payments “for a service for the distribution of… transportation” were covered utility payments. The FAQs clarify that this refers to transportation utility fees assessed by state and local government. Based on the FAQs it does not appear that gas and other transportation-related expenses will qualify for loan forgiveness.
- Electricity bills in their entirety are eligible for loan forgiveness if paid or incurred during the covered period. This includes supply charges, distribution charges, and other taxes and fees.
Loan Forgiveness Reductions
- A seasonal employer who elected to use a 12-week period between May 1, 2019 and September 15, 2019 to determine the maximum PPP loan amount must use the same 12-week period in calculating loan forgiveness reduction (for reduced FTEs and/or reduced salaries and wages).
- A borrower does not need to reduce loan forgiveness for a reduction in FTEs if the borrower can show a documented inability to rehire individuals who were employed on February 15th and an inability to hire “similarly qualified” individuals by December 31st. In calculating the “FTE Reduction Exception” on the forgiveness application, the borrower should include all employees for which they meet this exception, regardless of whether the employee’s annualized salary was in excess of $100,000.
- For purposes of calculating the loan forgiveness reduction related to a more than 25% reduction in salary or hourly wage, the borrower should only take into account decreases in salaries or wages and should not include other forms of compensation (i.e. health benefits, retirement, etc.).
- The SBA will reduce a borrower’s forgiveness amount for any EIDL advance that was received (up to $10,000). If a borrower received an EIDL advance in excess of its PPP loan proceeds, the borrower will not be eligible for any PPP loan forgiveness.
Interim Final Rule – Appeal Procedures
Earlier this week the SBA issued an Interim Final Rule to outline the process a PPP borrower must follow in order to appeal an SBA decision through the SBA Office of Hearings and Appeals (OHA). Decisions that a borrower may want to appeal include an SBA finding that the borrower was ineligible for a PPP loan, that the borrower used PPP proceeds for unauthorized uses, and/or that the borrower is not eligible for full or partial PPP loan forgiveness.
This process only applies to final decisions made by the SBA and cannot be used by a borrower to appeal a decision made by a lender. If a borrower wishes to appeal a lender decision relating to loan forgiveness, the borrower may ask the SBA to review that decision but it will not be reviewed by the OHA. Further, if the SBA issues a decision that is in agreement with the lender’s forgiveness decision (notwithstanding adjustments for any EIDL advances), the borrower may not appeal the decision.