SBA Provides Additional Guidance on PPP Loan Forgiveness
August 6, 2020
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The Small Business Administration (SBA) along with the Department of the Treasury has provided additional guidance concerning forgiveness of Paycheck Protection Program (PPP) loans.
The SBA has provided this PPP loan forgiveness guidance in the form of an FAQ. Below are some key highlights from this document.
General Loan Forgiveness
- Sole proprietors, independent contractors, and self-employed individuals who had no employees at the time of the PPP loan application automatically qualify to use the simplified EZ forgiveness application.
- As long as a borrower submits its loan forgiveness application within ten months of the end of the applicable Covered Period, the borrower does not have to make any loan payments until the forgiveness amount is remitted by the SBA.
- If the loan is fully forgiven, the borrower is not responsible for any payments.
- If a portion of the loan is forgiven, or if the forgiveness application is denied, any remaining balance due on the loan must be repaid on or before the maturity date of the loan. The borrower is also responsible for paying the accrued interest on any amount of the loan that is not forgiven.
- Payroll costs incurred during the Covered Period (or the Alternative Payroll Covered Period), but paid after the period (on or before the next regular payroll date after the period) are eligible for loan forgiveness.
- Payroll costs incurred before the Covered Period but paid during the period are also eligible for loan forgiveness.
- When calculating cash compensation, borrowers should use the gross amount.
- Payroll costs include all forms of cash compensation paid to employees. This includes tips, commissions, bonuses, and hazard pay. The amount of cash compensation that is forgivable is limited to $100,000 on an annualized basis.
- Employer expenses for employee group health care benefits that are paid or incurred during the Covered Period or the Alternative Payroll Covered Period are payroll costs eligible for loan forgiveness.
- Forgiveness is not provided for expenses for group health benefits accelerated from periods outside the Covered Period or the Alternative Payroll Covered Period.
- Employer contributions for employee retirement benefits that are paid or incurred by during the Covered Period or the Alternative Payroll Covered Period qualify as an eligible payroll cost for loan forgiveness.
- Forgiveness is not available for employer contributions for retirement benefits accelerated from periods outside of the Covered Period or the Alternative Payroll Covered Period.
- The amount of loan forgiveness requested for owner-employees and self-employed individuals’ payroll compensation is capped at $20,833 per individual in total across all businesses in which he or she has an ownership stake.
- Eligible business mortgage interest costs, rent or lease costs, and utility costs incurred prior to the Covered Period and paid during the period are eligible for loan forgiveness.
- Non-payroll costs that are incurred during the Covered Period and paid on or before the next regular billing date – even if that date is after the Covered Period – are eligible for loan forgiveness.
- The Alternative Payroll Covered Period only applies to payroll costs, not to non-payroll costs.
- Interest on unsecured credit incurred before February 15, 2020 is a permissible use of PPP loan proceeds. However, this expense is not eligible for forgiveness.
- If a mortgage loan on real or personal property existed prior to February 15, 2020 and is refinanced on or after that date, the interest payments on the refinanced mortgage loan during the Covered Period are eligible for loan forgiveness.
Loan Forgiveness Reduction
- In calculating the loan forgiveness amount, a borrower may exclude any reduction in FTE employees if the borrower is able to document in good faith the following:
- An inability to rehire individuals who were employees of the borrower on February 15, 2020.
- An inability to hire similarly qualified individuals for unfilled positions on or before December 31, 2020.
- A seasonal employer that uses a 12-week period to calculate its maximum loan amount must use the same 12-week period as the reference period for calculating any loan forgiveness.
- The FTE reduction exceptions should take into account all employees, including those that make more than $100,000 annually.
- When calculating the loan forgiveness reduction for salary/hourly wage reductions in excess of 25%, the borrower should only take into account decreases in salary/wages and not other forms of compensation.
Disclaimer: This is simply a summary of some of the guidance the SBA provided concerning PPP loan forgiveness. This does not constitute legal advice. Always check with your own legal and/or financial advisors as to how this information and others may apply to you or your business.