Accountants + Business Advisors

SBA Releases Revisions to Interim Final Rule and Revised PPP Forgiveness Application

6.18.20

SBA Releases Revisions to Interim Final Rule and Revised PPP Forgiveness Application

Released Wednesday, June 17th

Thursday, June 18, 2020
 
The Small Business Administration (SBA), in conjunction with the US Treasury, has released revisions to the Interim Final Rule relating to the Paycheck Protection Program (PPP) and released two new PPP Loan Forgiveness applications.

Our COVID-19 Response Team discusses the major updates, along with links to the revised PPP application below:

  • Owner Compensation has additional restrictions. Specifically, owner compensation is now based on 2.5 months of 2019 compensation (or $100,000 maximum). 
    • Prior Guidance: 2019 compensation divided by 52 weeks, multiplied by 24 weeks
    • Example 1: Let’s assume 2019 owner compensation was $100,000.
      • Under prior guidance: $100,000/52 = $1,923 * 24 weeks = $46,154
      • Under NEW guidance: $100,000/12 = $8,333 * 2.5 months = $20,833
      • DIFFERENCE OF $25,321
    • Limitation on owner compensation is per owner across all businesses.
    • Per guidance issued May 22nd, owner employee cash compensation is limited:
      • Schedule C – Capped by the amount of owner compensation replacement, calculated based on 2019 net profit, with no additional forgiveness for retirement or health care insurance contributions.
      • General Partners – Capped by the amount of their 2019 net earnings from self-employment (reduced by claimed section 179 expense deduction, unreimbursed partnership expenses, and depletion from oil and gas properties) multiplied by 0.9235. No additional forgiveness is provided for retirement or health insurance contributions.
      • Other (including S Corp Owners): Limited at 2019 compensation or $100,000, whichever is lesser. Retirement plan contributions for owner employees are capped at 2.5 months’ worth of 2019 contributions. (This clause is only in the PPP Loan Forgiveness EZ Application instructions – we cannot verify if this applies under the Full PPP Loan Forgiveness Application as well.)
  • New FTE safe harbor/additional certification of Borrower:
    • “If the Borrower has checked the box for FTE Reduction Safe Harbor 1 on PPP Schedule A, the Borrower was unable to operate between February 15, 2020 and the end of the Covered Period at the same level of business activity as before February 15, 2020 due to compliance with requirements established or guidance issued between March 1, 2020 and December 31, 2020, by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to the maintenance of standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19.”
    • If the above certification has been met (and Borrower checks the box), then any reduction in FTE headcount will not negatively impact forgiveness amounts.
  • Option for Forgiveness Application EZ:
    • A Borrower can elect to utilize the Form EZ if the Borrower can check at least one of the below boxes:
      • The Borrower is a self-employed individual, independent contractor, or sole proprietor who had no employees at the time of the PPP loan application and did not include any employee salaries in the computation of average monthly payroll in the Borrower Application Form.
      • The Borrower did not reduce annual salary or hourly wages of any employee by more than 25% during the Covered Period compared to the period between January 1, 2020 and March 31, 2020 (only for those employees who earned below $100,000 in 2019). AND the Borrower did not reduce the number of employees or the average paid hours of employees between January 1, 2020 and the end of the Covered Period. (Ignore reductions that arose from an inability to rehire individuals who were employees on February 15, 2020 if the Borrower was unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020.  Also ignore reductions in an employee’s hours that the Borrower offered to restore and the employee refused.)
      • The Borrower did not reduce annual salary or hourly wages of any employee by more than 25% during the Covered Period compared to the period between January 1, 2020 and March 31, 2020 (only for those employees who earned below $100,000 in 2019). AND the Borrower was unable to operate during the Covered Period at the same level of business activity as before February 15, 2020, due to compliance with requirements established or guidance issued between March 1, 2020 and December 31, 2020 by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to the maintenance of standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19.

 
Minor Updates/Previously Announced Now in Interim Final Rule:

  • PPP forgivable expenses must be incurred OR paid during the covered period.
  • Interim Final Rule is revised to include the issuance and use of PPP Loan funds through December 31, 2020. 
  • PPP Loans made after June 5th have a minimum maturity of 5 years. PPP Loans made prior to June 5th have the option to elect to extend the current maturity of 2 years to 5 years based on mutual agreement between the Lender and the Borrower.
  • The portion of PPP Loan funds required to be spent on payroll for forgiveness is lowered to 60% (compared to the previous 75% rule)
  • PPP Loans made prior to June 5th can elect an 8 or 24-week “covered period” (aka forgiveness period). However, no PPP Loan covered periods can extend beyond December 31, 2020.
  • Documentation updates:
    • Documentation regarding any employee job offers and refusals, refusals to accept restoration of reductions in hours, firings for cause, voluntary resignations, written requests by any employee for reductions in work schedule, and any inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020.
    • Documentation supporting the certification, if applicable, that the Borrower did not reduce the number of employees or the average paid hours of employees between January 1, 2020 and the end of the Covered Period (other than any reductions that arose from an inability to rehire individuals who were employees on February 15, 2020, if the Borrower was unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020). This documentation must include payroll records that separately list each employee and show the amounts paid to each employee between January 1, 2020 and the end of the Covered Period.
    • Documentation supporting the certification, if applicable, that the Borrower was unable to operate between February 15, 2020 and the end of the Covered Period at the same level of business activity as before February 15, 2020 due to compliance with requirements established or guidance issued between March 1, 2020 and December 31, 2020 by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to the maintenance of standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19. This documentation must include copies of the applicable requirements for each borrower location and relevant borrower financial records.
  • The Borrower must retain all documentation related to the PPP Loan, application, forgiveness, and such supporting documentation in its files for 6 years after the date of the loan is forgiven or repaid in full, and permit authorized representatives of SBA, including representatives of its Office of Inspector General, to access such files upon request.

Updated PPP Application and Resources:

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