The Small Business Administration (SBA), in consultation with the Department of the Treasury, issued additional guidance regarding PPP Loan Forgiveness for funds advanced as part of section 1106 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), as amended by the Paycheck Protection Program Flexibility Act (Flexibility Act).
We compiled key takeaways from the FAQs released on August 4th:
- Payroll costs incurred before the covered period but paid during the covered period are eligible for forgiveness
- Gross compensation to employees (before any of the various deductions) is considered cash compensation eligible for forgiveness as well as borrower portion of employee health and retirement plan payments. The employee portions of health and retirement plan payments are not included.
- Payroll costs eligible for forgiveness includes tips, commissions, bonuses, and hazard pay
- Forgiveness is not provided for expenses of group health benefits or retirement benefits accelerated from periods outside the Covered Period or Alternative Covered Period.
- New limits on employer health benefits and retirement contributions for owners, depending on the type of entity and are limited to 2.5/12 of 2019 prior year employer group health benefits and retirement contributions allocable to owners.
- Payments made on recently renewed lease or interest payments for recently refinanced debt are deductible forgivable as long as the original lease or mortgage existed before February 15, 2020.
- Transportation costs were defined as utility fees assessed by state and local governments only. Previously the SBA had stated that businesses’ use of gas could be considered transportation costs eligible for forgiveness which created considerable confusion.
- Seasonal Employers who used a 12 week period between May 1, 2019, and September 15, 2019, to calculate its maximum PPP loan amount MUST use the same 12-week period as the reference period for calculation of any reduction in the amount of loan forgiveness.
- The salary/hourly reduction calculations are based on the “Pay Rate”, and examples are given to show neither a reduction in hours worked nor a reduction in all other forms of compensation should be considered.
As previously announced, the SBA has stated they will begin accepting PPP loan forgiveness applications submitted by lenders on its portal beginning on or about August 10, 2020 (barring any further changes). This portal’s opening date will remain subject to extension if Congress makes changes to the loan forgiveness process or other stipulations of the PPP loan structure.
There is pending legislation that is currently under consideration for automatic forgiveness of PPP loans of $150K or less (of which approximately 87% of PPP loans advanced fall into this threshold – approximately 4 million loans). U.S. Treasury Secretary Steven Mnuchin, advised the House Small Business Committee in July that “We should consider forgiving all small loans but would need fraud protection.” There has been a growing push to automatically forgive these smaller PPP loans from the SBA, and while Senate Republicans have included automatic forgiveness for loans below $150,000 as part of their stimulus proposal introduced Monday (August 3rd), they have also introduced a middle tier of forgiveness requirements for loans falling in the $150,000 and $2 million range. For these loans, their proposal merely requires businesses to complete a certification and retain relevant records with supporting worksheets for up to three (3) years, though banks would still need to submit a loan forgiveness application to the SBA.
Since there is a high likelihood of additional PPP announcements occurring after the opening of the Forgiveness portal, most banks are not requesting or accepting PPP Forgiveness applications at this time, but that may change at anytime. Please continue to check our Blue & Co website for additional updates as it relates to the PPP as we learn more.
We will continue to monitor and provide additional updates. However, if you have any questions, please contact your local Blue & Co. advisor.