The Small Business Administration (SBA) released the Paycheck Protection Program Loan Forgiveness Instructions and Application for borrowers.
As required by the CARES Act (Public Law No: 116-136), Paycheck Protection Program (PPP) loans will be fully forgiven if funds are used for eligible payroll costs incurred or paid during the eight-week covered period and other allowable expenses (including business mortgage interest payments, rent or lease payments, business utility payments). At least 75 percent of the forgiven amount must have been used for payroll costs.
The application form provides step-by-step instructions on how to calculate the forgiveness amount. It also includes a new exception from the loan forgiveness reduction for borrowers that made a good-faith, written offer to rehire an employee during the covered period which was rejected by the employee. Additionally, the application form notes a safe harbor that exempts certain borrowers from the loan forgiveness reduction if they meet the following conditions:
- The borrower reduced its FTE employee levels in the period beginning February 15, 2020, and ending April 26, 2020; and
- The borrower restored its FTE employee levels by not later than June 30, 2020 to its FTE employee levels in the borrower’s pay period that included February 15, 2020.
In addition, SBA issued the following interim final rules on PPP loans:
- Loan Increases – The interim final rule provides additional guidance clarifying that PPP loans may be increased for approved partnerships (typically applies to individuals with self-employment income) to include partner compensation. In addition, loans for seasonal employers may be increased based on a revised calculation using the alternative criteria. As a result, lenders are allowed to make an additional disbursement for the increase loan amount.
- Extension of Limited Safe Harbor with Respect to Certification Concerning Need for PPP Loan Request – The interim final rule extends the deadline for lenders to submit the SBA Form 1502 (which collects payment and loan information) from May 18, 2020 to May 22, 2020. The extension corresponds with the extension to the safe harbor deadline for repaying PPP loans from May 7, 2020 to May 14, 2020.
- Eligibility of Certain Electric Cooperatives – The interim final rule states that electric cooperatives that are exempt from Federal income taxation will be considered a “a business entity organized for profit,” and therefore, will be eligible for a PPP loan.
These interim final rules will take effect on May 19, 2020 (i.e., the scheduled date of publication in the Federal Register). Comments are due 30 days after publication (i.e., on or around June 18, 2020).
Below are upcoming comment deadlines for previously issued interim final rules on PPP:
- 85 FR 21747 provides additional guidance regarding eligibility for individuals with self-employment income and certain businesses. Comments are due May 20, 2020 (WHG summary).
- 85 FR 23450 provides additional guidance regarding promissory notes, authorizations, affiliation, and eligibility. Comments are due May 28, 2020 (WHG summary).
- 85 FR 23917 authorizes eligible lenders to use alternative criteria to calculate the maximum loan amount for PPP loans. Comments are due May 30, 2020 (WHG summary).
- 85 FR 26321 clarifies that a lender must fully disburse a PPP loan within 10 calendar days of loan approval. Comments are due June 3, 2020 (WHG summary).
- 85 FR 26324 provides guidance amount of PPP loans that any single corporate group may receive and criteria for non-bank lender participation in the PPP. Comments are due June 3, 2020 (WHG summary).
- 85 FR 27287 provides additional guidance on nondiscrimination obligations and additional eligibility requirements for higher education institutions. Comments are due June 8, 2020 (WHG summary).
Lastly, Frequently Asked Questions for lenders and borrowers (last updated May 13, 2020) are available here.