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Paycheck Protection Program (PPP) Interim Final Rule on Loan Forgiveness

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On May 22, 2020, the U.S. Small Business Administration (SBA) issued the Interim Final Rule on Loan Forgiveness.  This interim rule was issued to provide PPP borrowers clarification for the Loan Forgiveness Application issued by the SBA.

The Interim Final Rule on Loan Forgiveness covers:

  • Loan Forgiveness Process
  • Payroll Costs Eligible for Loan Forgiveness
  • Nonpayroll Costs Eligible for Loan Forgiveness
  • Reductions to Loan Forgiveness Amount
  • Documentation Requirements

The complete Interim Final Rule on Loan Forgiveness is available on the U.S. Treasury website.  The key takeaways are:

Loan Forgiveness Process 

  • Lender has 60 days from the receipt of a complete application to issue a decision to the SBA. The lender must then request payment from the SBA and then the SBA will have 90 days after the lender issues its decision to the SBA.
  • Borrower is responsible for accuracy of calculations. 

Payroll Cost Eligible for Loan Forgiveness  

  • Payroll costs paid or incurred during the eight-consecutive week period are eligible for forgiveness. In the application, eligible payroll costs were defined as the payroll costs paid and payroll costs incurred during the eight-week. It appears that the “and” has been replaced with an “or”, meaning anything paid within the period would be eligible for forgiveness.
  • For employees who are not performing work but are still on the borrower’s payroll, payroll costs are incurred based on the schedule established by the borrower (typically, each day that the employee would have performed the work).
  • Wages paid to furloughed employees count towards forgiveness.
  • Bonuses / hazard pay can be paid to employees, but not to owners, and not above $15,385 during the covered period
  • “Owner employees” and self-employed individuals are capped at $15,385 or 8/52 of 2019 cash compensation (whichever is less). Employee retirement and health care contributions may be included if not a Schedule C filer or General Partner. This is per individual in total across all businesses.
  • Schedule C filers are capped by the amount of their owner compensation replacement, which is based on their 2019 net profit.
  • General Partners are capped by the amount of 2019 net earnings from self-employment with some reductions multiplied by 92.35%.

Nonpayroll Costs Eligible for Loan Forgiveness

There is the ability to get more than two months of non-payroll costs included with your forgiveness calculation. Forgivable if:

a) Paid during the covered period; or

b) Incurred during the covered period and paid on or before the next regular billing date

i. Example: Covered Period is June 1 and ends July 26

      1. Pay May’s electric bill in June (paid in covered period)
      2. Pay June’s electric bill in July (paid in covered period)
      3. Pay July’s electric bill in August (Jul 1 – Jul 26th portion within covered period)
  • No advance payments on interest on mortgage obligation.

Reductions to Loan Forgiveness Amount 

  • No reduction if employee declines to be rehired or declines restoration in hours. Borrower must take certain actions for this to apply, which includes reporting to the unemployment insurance office those employees that refuse to come back to work within 30 days to be able to exclude them from the calculation (see interim rule for complete listing of documentation requirements).
  • The reduction for reduced salary only applies to the portion of the decline in salary that is not attributable to an FTE reduction. To further clarify, if hours went down from the base period to the covered period you would just have a reduction on the FTE not the wages. This ensures that borrowers are not doubly penalized.
  • You must have an FTE decrease during the Feb 15 to April 26 time frame in order to use the safe harbor for restoration. It is based on using average FTE during that Feb 15 to April 26 time frame and comparing to FTE on Feb 15th

Given the above issued guidance, we have updated the blumshapiro PPP Loan Forgiveness Toolkit & Calculator. You can download the updated version here. We will continue to update the PPP Loan Forgiveness Toolkit & Calculator as additional guidance becomes available.

PPP Loan Forgiveness Toolkit

Disclaimer:  The contents of this resource are for general informational purposes only. While every effort has been made to ensure its accuracy, the information is provided “as is” and no representations are made that the content is error-free. We have no obligation to update any content, comments or other information for retroactive or prospective interpretations or guidance provided by regulators, financial institutions or others. The information is not intended to constitute legal advice or replace the advice of a qualified professional. There are areas of the CARES Act where additional clarification from the Treasury Department and the SBA is needed. Your judgment and interpretation of the act may be needed. Users should consult with their legal counsel and representatives of the lending institution regarding the proper completion of their application and supporting documentation.

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