New PPP Loan Forgiveness Guidance and Possible Congressional Changes
Treasury and the U.S. Small Business Administration (SBA) released new Paycheck Protection Program (PPP) guidance Friday night, May 22nd, that provides some clarity on several loan forgiveness questions but leaves key questions unanswered. The two new interim final rules issued late Friday build upon the loan forgiveness application and instructions released May 15 but do not address either the eight-week period during which PPP funds must be spent to qualify for forgiveness or the rule requiring PPP borrowers to spend at least 75% of the funds on payroll costs to qualify for full loan forgiveness.
Those two issues are the focus of multiple bills being considered in Congress.
The Senate could vote as early as this week on a bill that would double the loan forgiveness period to 16 weeks. The House is expected to vote this week on standalone legislation that would extend the loan forgiveness period to as long as 24 weeks and also eliminate the rule requiring PPP borrowers to spend at least 75% of the funds on payroll costs to qualify for full loan forgiveness. A separate Senate bill would also expand the loan forgiveness period to 24 weeks and eliminate the 75% rule.
Through May 23, the SBA approved more than 4.4 million PPP loans totaling more than $511 billion. About $138 billion in PPP funds remained available for additional lending as of May 23.
Highlights of the new interim rules
While the two proposed bills making their way through Congress would have an impact on loan forgiveness, the two new interim final rules released Friday are the most recent authoritative guidance. One addresses requirements for loan forgiveness (READ) and the other outlines PPP loan review procedures and related borrower and lender responsibilities (READ).
The 26 pages of loan forgiveness requirements guidance, a substantial portion of which repeats the instructions to the PPP loan forgiveness application released on May 15, answer more many questions related to the loan forgiveness process, which payroll and non-payroll costs are eligible for forgiveness, and how various scenarios affect the amount of loan forgiveness for which a borrower qualifies. Highlights include:
- Establishment of an alternative method for determining when the eight-week period starts. Businesses with pay cycles of biweekly or more frequent 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 — which remains the requirement for all businesses with pay periods less frequent than biweekly.
- Clarification that 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.
- Clarification on when non-payroll costs must be incurred or be paid to qualify for loan forgiveness. Specifically, the costs must be paid during the eight-week period or incurred during the period and paid on or before then next regular billing date, even if that date is after the eight weeks. The guidance also states that advance payments on mortgage interest are not eligible for loan forgiveness.
- Confirmation that employers can exclude from loan forgiveness calculations certain employees. The new guidance reiterates that in calculating any reduction in full time equivalent employees, 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. 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. Additionally excluded from the loan forgiveness reduction calculations are employees fired for cause or if the employee voluntarily resigned, or voluntarily requested a reduction in hours
- Definition of full-time equivalent as 40 hours, and two methods for calculating FTEs for non full-time employees.
- Declaration that borrowers can restore forgiveness if they rehire employees by June 30 and reverse reductions to salaries and wages for FTE employees by June 30. The guidance states that loan forgiveness totals will not be reduced for both hours and wage reductions for the same employee.
The 19-page interim rule on PPP review procedures and related borrow and lender responsibilities covers procedural details. Most notably the rule:
- Establishes that 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.
- Declares that borrowers may appeal SBA determinations within 30 days of receipt. The guidance also says an appeal process will be established, with the specifics coming in a later interim final rule.
- Requires lenders 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.
- Clarifies that borrowers may be asked questions by lenders and the SBA.
- Confirms that lenders will not be paid their fees for any PPP loans the SBA deems ineligible. This includes a 1-year clawback provision on bank fees for those loans.
W&D is here to help.
We will continue to keep you updated as new guidance is released by the Treasury and SBA. Additionally, we are pleased to host a LIVE webinar on Wednesday, May 27th, exploring the application and updated forgiveness guidance. REGISTER.
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