The Latest Development on PPP Loan Forgiveness
On August 4, 2020, the Small Business Administration (“SBA”) provided additional guidance to address frequently asked questions in connection with loan forgiveness of Paycheck Protection Program (“PPP”) loans. Some of the more critical updates are summarized below. For the full text, please click here.
- All PPP lenders are able to accept scanned copies of signed loan forgiveness applications and documents in connection with such application. Lenders may also accept e-consents or e-signatures so long as they comply with the requirements of the Electronic Signatures in Global and National Commerce Act. However, this guidance does not supersede any signature requirements imposed by other applicable laws, including a lender’s primary federal regulator.
- If a borrower submits its loan forgiveness application within ten months of the completion of the Covered Period (as defined below), the borrower is not required to make any payments until the forgiveness amount is remitted to the lender by the SBA. However, interest accrues during the time between the disbursement of the loan and the SBA remittance of the forgiveness amount and the borrower is responsible for paying the accrued interest on any amount of the loan that is not ultimately forgiven. The lender is responsible for notifying the borrower of remittance by the SBA of the loan forgiveness amount (or the determination by the SBA that no amount of the loan is eligible for forgiveness) and the date on which the borrower’s first payment is due, if applicable. The Covered Period is either (1) the 24-week period beginning on the PPP loan disbursement date, or (2) if the borrower received its PPP loan before June 5, 2020, the borrower may elect to use an eight-week Covered Period. In no event, however, may the Covered Period extend beyond December 31, 2020.
- Payroll costs that were incurred during the Covered Period or the Alternative Payroll Covered Period (as defined below) but paid afterwards on or before the next regular payroll date are eligible for loan forgiveness. Likewise, payroll costs incurred before the Covered Period or the Alternative Payroll Covered Period but paid during the Covered Period or Alternative Payroll Covered Period are also eligible for loan forgiveness. Borrowers with a biweekly or more frequent payroll schedule may elect to calculate the eligible payroll costs using the 24-week period (or for loans received before June 5, 2020, they may elect to use the eight-week period that begins on the first day of their first pay period following the PPP loan disbursement date (as opposed to the PPP loan disbursement date itself) (The “Alternative Payroll Covered Period”).
- Payroll costs include all forms of cash compensation including tips, commissions, bonuses and hazard pay, however the forgivable cash compensation per employee is limited to $100,000 on an annualized basis.
- Employer expenses for employee group health care benefits that are paid or incurred by the borrower during the Covered Period or the Alternative Payroll Covered Period are eligible for loan forgiveness. Note that this does not include expenses for group health care benefits paid by employees (or beneficiaries of the plan) either pre-tax or after tax. Forgiveness is not provided for expenses for group health benefits accelerated from periods outside the Covered Period or Alternative Payroll Covered Period.
- Employer contributions for employee retirement benefits that are paid or incurred by borrower during the Covered Period or Alternative Payroll Covered Period are also eligible for loan forgiveness. This cannot include any contributions deducted from employees’ pay or otherwise paid by employees.
- If a borrower elects to use the Alternative Payroll Covered Period for payroll costs, it is important to note that this period will not apply to non-payroll costs (mortgage interest costs, eligible business rent or lease costs, and eligible business utility costs), the Covered Period must be used for these calculations.
- Borrower should include employees who made more than $100,000 on the FTE Reduction Exception line in Table 1 of the PPP Schedule A Worksheet. The FTE Reduction Exceptions apply to all employees and not just those who made less than $100,000.
- For purposes of calculating the reductions in the loan forgiveness amount, the borrower should only take into account decreases in salaries or wages and not other forms of compensation.
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