PPP Loan Forgiveness – New Details Available
Just as the Memorial Day weekend was about to kick off, the Small Business Administration (SBA) and Treasury published updates to the Paycheck Protection Program (PPP) Interim Final Rule (the Rule). The update, which was released late on May 22, 2020, provides important new details about the loan forgiveness process. For those businesses facing the approaching end to their Covered Period, the new guidance provides much-needed information. Although many questions remain unanswered, topics such as offers to rehire employees, PPP loan reviews, forgiveness limits for the self-employed, and details about the forgiveness process were provided. Clayton & McKervey has provided a summary of key points below:
Interim Final Rule Updates
- Alternative Covered Period for Payroll Costs – The rules afford an alternate covered period for payroll that may be easier for borrowers to administer. The Alternative Covered Period is available to a borrower with a bi-weekly (or more frequent) payroll cycle. The borrower 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 this eight-week alternative payroll covered period but paid after the end of the alternative payroll covered period, such payroll costs will be eligible for forgiveness if they are paid no later than the first regular payroll date thereafter.
- Payments to Furloughed Employees – There has been some question about an employer’s ability to receive forgiveness for compensation including salary, wages, and commissions, to furloughed employees. Yes, the Rule states that as long as an employee’s total compensation does not exceed $100,000 on an annualized basis, additional wages such as hazard pay, and bonuses are eligible for loan forgiveness.
- Offers to Rehire Employees – The recent guidance around whether employers who successfully attempt to rehire laid-off workers is reiterated. However, the Rule provides additional information on the conditions under which loan forgiveness would not be impacted. This includes a certification the borrower made a good faith written offer to rehire the employee during the covered period, it was for the same salary, wages, and hours earned on the last day of employment, and it was rejected. Finally, the borrower must inform the state unemployment insurance office of the rejected offer within 30 days.
- PPP Loan Reviews – Over the last 30 days there has been a lot of discussion about loan reviews from the SBA. Given the evolving nature of the guidance, some may have taken a loan without fully meeting the requirements. The Rule states the SBA may review any PPP loan it deems appropriate and retains the option to work with the bank or borrower directly to resolve concerns. Finally, the SBA will issue a subsequent interim final rule outlining additional loan forgiveness details.
- Loan Forgiveness Limits for the Self Employed – The Rule also clarified there are limits to the amount of loan forgiveness available to owner-employees and the self -employed. Specifically, payroll compensation can be no more than the lesser of 8/52 of 2019 compensation or $15,385 per individual, in total, across all businesses. Specifically, owner-employees are limited to the amount of their 2019 cash compensation and employer retirement and healthcare contributions made on their behalf. Schedule C filers are limited by the amount of owner compensation determined by 2019 net profit. Finally, general partners are limited to the amount of their 2019 net earnings from self-employment times .9235. There is no additional forgiveness for the self-employed or general partners with respect to healthcare and retirement contributions because these expenses are paid out of net self-employment income.
- Loan Forgiveness Process – While the SBA stated they will issue a separate update on loan forgiveness; new information was provided about the overall process. The first step is for the borrower to complete and submit the loan forgiveness application to the lender. If the lender determines the borrower is entitled to forgiveness, then they request repayment from the SBA. The lender has 60 days to render a decision. If the SBA accepts the lender’s decision, they will remit the forgiveness amount along with accrued interest no later than 90 days after the decision is made. However, if the SBA determines the borrower was not eligible to receive a loan based on the established criteria, then the borrower will be ruled ineligible to receive loan forgiveness.
While borrowers still do not have all the answers the information provided will help to make important decisions regarding forgiveness. Given the complexity of the updates and the fast pace at which they are being published, it’s important to consult with a qualified advisor to review your situation. If you have questions about the information outlined above or need assistance with another COVID-19 business issue, Clayton & McKervey can help. For additional information call us at 248.208.8860. We look forward to assisting you.