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PPP SBA Interim Final Rule

On May 15, 2020, the Treasury Department and Small Business Administration(SBA) released the PPP Forgiveness Application providing additional guidance and insight on the loan application process to borrowers. Additionally, the SBA released an Interim Final Rule (IFR) related to loan forgiveness on May 22, 2020, which was consistent with the application and added clarifications. Keep in mind that the government will issue further clarifications.

1. Established an Alternative Time Period for Forgiveness

The principal amount of the PPP loan is eligible for forgiveness up to the amount of loan that was used for eligible expenses during the cover period. Borrowers may seek forgiveness within the cover period beginning on either:

  • (1) the date of disbursement of the PPP loan by the lender or
  • (2) the alternative payroll cover period beginning on the first date of the first payroll cycle in the covered period.

2. Furloughed Employees, Bonus, and Hazard pay

Compensation for furloughed employees is eligible for forgiveness. Additionally, hazard pay, commissions, and other bonuses may count as payroll costs. Salary, wages, hazard pay and bonuses can’t exceed $100,000 on an annualized basis [or $15,385 over an eight-week period] over the covered period or alternative payroll covered period.

3. Owner Compensation

Compensation for owner-employees and self-employed individuals is capped as follows the lesser of 8/52 of 2019 compensation or $15,385 per individual in total across all businesses.

Schedule C filers (under the Internal Revenue Code) are capped by the amount of their owner compensation replacement, calculated on the basis of 2019 net profit.

General partners are capped by the amount of their 2019 net earnings from self-employment (reduced by claimed Section 179 expense deductions under the Internal Revenue Code, unreimbursed partnership expenses, and depletion from oil and gas properties) multiplied by 0.9235.

4. Payroll Costs Paid vs. Incurred

Payroll costs are considered paid on the day that paychecks are distributed or an ACH credit transaction is originated and are considered incurred on the day the employee’s pay is earned. Payroll costs “incurred” but not paid during the last pay period of either the “Covered Period” or “Alternative Payroll Covered Period” are eligible for forgiveness if paid on or before your next regular payroll date.

5. Calculation of Full-Time Employees (FTE)

You will need to calculate the average full-time equivalency (FTE) during either the covered period or the alternative payroll covered period. You can calculate the average full-time equivalent employees FTEs during the Covered Period or Alternative Payroll Covered Period using either method:

  • (1) For each employee, enter the average number of hours paid per week, divide by 40, and round the total to the nearest tenth (but not > 1.0)
  • (2) Borrowers can choose a simplified method that assigns a 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work fewer hours

6. FTE Reduction Exceptions

Full-time equivalent employee count is not reduced for borrowers who:

  • made a good faith, written offer to rehire (or restore the hours of) an employee during the covered period or the alternative payroll covered period,
  • the offer was for the same salary or wages and the same number of hours as earned by the employee during the last pay period before the separation or hours reduction,
  • the offer was rejected by the employee,
  • the borrower has maintained records documenting the offer and rejection, and
  • the borrower informed the applicable state unemployment insurance office of such employee’s rejected offer of reemployment within 30 days of such rejection (further information regarding this reporting requirement will be made available on the SBA’s website).
  • It also does not reduce FTE count by employees fired for cause during the covered period (or alternative), employees who voluntarily left employment during the covered period (or alternative), or employees who voluntarily reduced their hours

7. Non-Payroll Costs Eligible for Forgiveness

A non-payroll cost can be counted if it was:

  • paid during the covered period; or
  • incurred during the covered period and paid on or before the next regular billing date, even if the billing date is after the covered period.

However, any advance payments on mortgage interest are not allowed.

8. Loan Forgiveness Process

(1) The borrower completes and submits the PPP Loan Forgiveness Application to the lender. Providing an accurate calculation of payroll costs is the responsibility of the borrower, and the borrower attests to the accuracy of those calculations on the Borrower Application Form.

(2) The lender will have 60 days to review the loan forgiveness application and submit its decision to the SBA. The borrower has 30 days from receiving the notice of decision from the lender to appeal the lender’s decision to the SBA

(3) The SBA will have 90 days to review the lender’s decision on loan forgiveness and remit to the lender the appropriate forgiveness amount plus any interest accrued.

(4) The lender must notify the borrower of the forgiveness amount. Any balance due on the loan must be repaid by the borrower on or before the two-year maturity of the loan.

(5) The SBA determination may be appealed within 30 days of receipt.

9. Borrower Recordkeeping Requirements

You must retain all documentation for six years after the date the loan is forgiven or repaid in full. The SBA may undertake a review of a PPP loan at any time, including within a 6 year period after the later of (1) forgiveness of the loan; and (2) the date of repayment in full.

10. Certifications on Behalf of the Borrower

The borrower has to make certain certifications that the amount for which forgiveness is requested was used to pay costs that are eligible for forgiveness. If the loan proceeds were knowingly used for unauthorized purposes, the government may pursue recovery of loan amounts and/or civil or criminal fraud charges.

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