Updated Guidance – PPP loan forgiveness and review process
On Memorial Day weekend, the US Treasury and the Small Business Administration (SBA) released two new Interim Final Rules regarding the Paycheck Protection Program (PPP).
Key updates and clarifications for PPP loan forgiveness include:
- Borrowers may seek forgiveness for payroll costs for the eight weeks beginning on either:
- The date of disbursement of the borrower’s PPP loan proceeds, OR
- The first day of the first payroll cycle in the covered period
- Payroll costs incurred during either of the above are eligible for forgiveness if paid on or before the next regular payroll date. Otherwise, payroll costs must be paid during the covered period.
- Because the eight-week covered period will not always align with a borrower’s payroll cycle, a borrower with a bi-weekly or more frequent payroll cycle may elect to use an alternative payroll covered period that begins on the first day of the first payroll cycle in the covered period and continues for the following eight weeks. If payroll costs are incurred during the eight-week alternative payroll covered period but paid after the end of that period, those payroll costs will be eligible for forgiveness if they are paid no later than the first regular payroll date following. This alternative computational method for payroll costs is available only for employers with pay periods that are bi-weekly or more frequent; semi-monthly pay periods do not qualify.
- Annualized pay still cannot exceed $100,000, but that can include salary, wages, or commission payments to furloughed employees; bonuses; or hazard pay during the covered period. Payments for employee group health coverage and retirement benefits are not subject to the $100,000 limit but are still eligible payroll costs for the forgiveness calculations.
- Forgiveness is available for owner-employees and self-employed individuals’ own payroll compensation, limited to the lesser of 8/52 of 2019 compensation or $15,385 per individual, in total, across all businesses. No additional forgiveness is provided for retirement or health insurance contributions for self-employed individuals. Loan forgiveness for shareholder employees is also limited to the lesser of $15,385 or 8/52 of 2019 compensation.
- If an employee is terminated and you offer reemployment, that will not count as a reduction in forgiveness, but you must notify the state unemployment agency.
Key updates and clarifications regarding loan review procedures:
- At its discretion, the SBA can review any loan of any amount at any time and for any reason, though priority will focus on eligibility.
- As noted on the application, PPP loan documentation must be kept for at least six years after the date the loan is forgiven or repaid in full.
- If the SBA determines a borrower was ineligible for the loan amount or loan forgiveness, the SBA will direct the lender to deny the loan forgiveness application in whole or in part. SBA also may “seek repayment of the outstanding PPP loan balance or pursue other available remedies.”
- The SBA intends to issue a separate interim final rule addressing the process for a borrower to appeal SBA’s determination that the borrower is ineligible for a PPP loan or the amount of loan forgiveness claimed by the borrower.
- The borrower has the responsibility of providing their lender with an accurate calculation of forgiveness and the lender must confirm the borrower’s calculations on the Loan Forgiveness Application. If payroll costs are not documented with a recognized source, like a payroll report created by a recognized payroll processor, a more extensive review of data and calculations may be undertaken.
- The lender will not get a processing fee if the SBA determines the loan is ineligible—processing fees paid to a lender are subject to a clawback.
- The lender must issue a decision to SBA on a loan forgiveness application not later than 60 days after receipt of a complete loan forgiveness application from the borrower. If the SBA has determined it will review a loan or forgiveness application, the lender must notify the borrower in writing within five business days of receipt.
Congress is considering extending the eight-week covered period as well as eliminating the 75% payroll cost requirement. We will keep you advised. Please contact your R&A advisor with any questions you may have.