Crucial Guidance on Maximizing PPP Loan Forgiveness
On June 23, 2020, the U.S. Department of the Treasury and the Small Business Administration released an Interim Final Rule with updated guidance for businesses who borrowed funds through the Paycheck Protection Program. The guidance is crucial for business owners to be able to maximize their loan forgiveness amounts. Some of the important updates are summarized below:
- The Covered Period for when loan proceeds must be spent to be eligible for forgiveness has been extended from eight weeks to 24 weeks but may end no later than December 31, 2020. Borrowers who received proceeds prior to June 5, 2020 can still elect to use the eight-week period.
- A borrower can apply for loan forgiveness at any time on or before the maturity date of the loan, including before the end of the applicable Covered Period so long as the borrower has used up all of the loan proceeds for which the borrower is requesting forgiveness. It is important to note that if the borrower applies for forgiveness early and has reduced the salaries of any employees who earn less than $100,000 annually by more than 25%, this reduction must be accounted for through the full applicable Covered Period.
- There is also additional guidance regarding the reduction of the amount of the proceeds eligible for loan forgiveness based upon salary reductions of more than 25% for employees who earn less than $100,000. To determine whether there has been a restoration of a previous reduction in Full-Time Equivalents (FTEs), a borrower must compare its FTEs as of February 15, 2020 to its FTEs as of the sooner of (i) the date the borrower submits the loan forgiveness application, or (ii) December 31, 2020. If the loan forgiveness application is submitted prior to the end of the borrower’s applicable Covered Period, it would calculate its FTEs as of the application date.
- The loan deferment period ends 10 months after the last day of the applicable Covered Period. If a borrower does not submit its loan forgiveness application prior to this date, it will be required to begin repaying the loan.
- In order to apply for loan forgiveness, a borrower must submit the SBA Form 3508, 3508EZ (if applicable) or its lender’s equivalent loan forgiveness application. The SBA forms have been made available for borrowers to review. A borrower should contact its lender to determine which application is the correct one for it to use. Each lender will have up to 60 days from the date that it receives the loan forgiveness application to review the application and make a determination regarding the forgiveness, which it must in turn submit to the SBA to request payment for the forgiven amount. The SBA will have a 90-day period to review the application and pay the forgiveness amount to the lender.
- Additional guidance was also provided for the determination of payroll costs for owner-employees. For borrowers that received their loan proceeds prior to June 5, 2020 and elected an eight-week Covered Period, the amount of eligible owner compensation is capped at eight weeks of their 2019 compensation, up to a maximum of $15,385 per person. For all other borrowers, the amount of loan forgiveness is capped at two and one-half months of their 2019 compensation, up to a maximum of $20,833 per person.
For more information on the topic discussed, contact:
E-Alert is a quarterly newsletter that features the latest thinking from Tannenbaum Helpern's various departments.
06.30.2020 | PUBLICATION: E-Alert |