The latest Interim Final Rule (IFR) on Paycheck Protection Program (PPP) Loan Forgiveness issued by the Small Business Administration (SBA) was released just before the holiday weekend. Here, K·Coe advisors break down the high-level takeaways from the PPP forgiveness that offer some important clarifications for borrowers and lenders.
Clarifications and Additions for Loan Forgiveness
- EIDL grants will reduce loan forgiveness.
- ‘Qualified payroll costs’ now includes:
- Wages paid to furloughed employees
- Bonus and hazard pay
- Owner-employees’ retirement and health contribution costs
- Self-employed individuals and general partners’ forgivable “compensation equivalent” is limited to $15,385 in total, across all businesses. Health insurance and retirement contributions are not eligible.
- Utility costs can be prorated over the borrower’s eight-week covered period.
- Example: Borrower’s covered period ends June 26. Its June electric bill covers service from June 1 to June 30, and is paid on the regular due date. The portion of the bill that covers service on or before June 26 is an eligible expense.
- Salary reduction and reduced hours: If a salary reduction is attributable to a reduction in hours, the reduction affects the borrower’s FTE count only, and does not cause a wage reduction (preventing a double penalty for a single event).
- Situations where a change in FTEs does not reduce forgiveness: If an employee was laid off or furloughed and declines a written offer to be restored to their position with full pay; employees who were fired for cause; employees who voluntarily resign; employees who voluntarily request a reduction in hours.
- Salary and Wages Reductions are calculated on a per-employee basis, and the first 25% of salary reduction is excluded from the forgiveness reduction calculation.
- Example: A borrower reduced a full-time employee’s weekly salary from $1,000 per week during the reference period to $700 per week during the covered period. In this case, the first $250 (25% of $1,000) is exempted from the reduction. The borrower’s forgiveness application will list $400 as the salary/hourly wage reduction for that employee ($50/week multiplied by eight weeks).
SBA Loan Review Procedures – for Borrowers & Lenders
Guidelines for Borrowers:
- SBA may review any PPP loan as the Administrator deems appropriate, at any time, for: eligibility, accuracy of the loan amount, the borrower’s use of funds, and accuracy of the forgiveness calculation.
- The audit process may be conducted using lenders as an intermediary, or the SBA may request additional information directly from the borrower.
- Failing to respond to SBA inquiry may result in a determination that the borrower was ineligible for the loan, received an incorrect loan amount, or received an incorrect forgiveness amount.
- If the SBA determined the borrower was not eligible for the loan, the SBA may pursue action against the borrower’s owner to recover the funds.
- Guidance on appeals of SBA audit decisions are coming in subsequent regulations.
Required Lender Actions:
- Lenders must complete a good-faith review of forgiveness applications for completeness and accuracy. Lenders may scale their review of calculations based on the source; for example, if payroll calculations are shown on a report from a known third-party payroll processor, the lender may choose to conduct a minimal review of that information. In contrast, if payroll costs are not documented with recognized sources, the lender should conduct a more thorough review.
- Lenders are encouraged to work with borrowers to compile a complete and accurate forgiveness application package, rather than issuing outright denials for deficiencies in the package.
- Lenders must notify the SBA of their forgiveness determination no later than 60 days after receiving the borrower’s complete forgiveness application.
The full 26-page IFR document can be found here: https://home.treasury.gov/system/files/136/PPP-IFR-Loan-Forgiveness.pdf.
The 19-page on loan reviews can be found here: https://home.treasury.gov/system/files/136/PPP-IFR-SBA-Loan-Review-Procedures-and-Related-Borrower-and-Lender-Responsibilities.pdf
Should you have any questions on the SBA’s guidance around PPP, contact a K·Coe advisor.