New Interim Final Rules Provide More Clarity on PPP Loan Forgiveness

May 28, 2020
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Last week, we talked about the Paycheck Protection Program (PPP) Loan Forgiveness Application and updated requirements that were recently released. Since then, the Small Business Administration (SBA) has issued two more Interim Final Rules on May 22. These address borrower and lender responsibilities, loan review procedures and loan forgiveness eligibility requirements.

Let’s look at some of the key points from the new guidelines:

Interim Final Rule #1: Loan Forgiveness Requirements

The first interim final rule focuses on specific requirements for PPP loan forgiveness. It covers quite a lot of ground, including the following topics:

Review Deadlines

There is still no clarity whether or not the borrower has a deadline to submit the Loan Forgiveness Application. However, there are review deadlines for lenders and the SBA. If a loan has not been reviewed by the SBA prior to the lender’s decision on loan forgiveness, the lender must issue their decision within 60 days of receiving the completed application. The SBA will then have 90 days to remit the appropriate forgiveness amount, plus any accrued interest.

8-Week Period

The interim final rule does confirm that the eight-week payroll eligibility period does begin on the date of the loan disbursement. However, there is still some gray area surrounding payroll payments made early in the period, even if they were incurred prior to the beginning of the period. The interim final rule implies that those payments will be eligible, but there may be more clarity to come on that particular issue.

Furloughed Employees, Hazard Pay and Bonuses

The interim final rule confirms that payments of salaries, wages, bonuses, hazard pay and commissions paid to furloughed employees are eligible payroll costs. They are still subject to $100,000 maximum cash compensation on an annualized basis.

Owner-Employees and Self-Employed Individuals

Self-employed individuals are limited to the $100,000 max noted above, and the interim final rule states that the same principles apply to owner-employees, as well. They are capped by their 2019 employee cash compensation, retirement and health care contributions.

Nonpayroll Costs

Certain forgiveness-eligible nonpayroll costs can be forgiven if paid during the covered period or incurred during the covered period (as long as paid on or before the next regular billing date).

Mortgage Interest Prepayments

Advanced payments of mortgage interest are NOT eligible for PPP loan forgiveness, nor are mortgage principal payments.

Employee Rehiring Offers

If an employer makes a written, good faith offer to rehire (or restore hours for) an employee during the covered eight-week period and the employee refuses, they will be exempt from certain reductions in loan forgiveness. The interim final rule does add the stipulation that the borrower must inform the state unemployment office of the rejected offer within 30 days.

Full-Time Equivalent Employees (FTEE)

A full-time equivalent employee is defined as an individual who works 40 or more hours per week. For any employees working less than 40 hours per week, the payroll cost forgiveness is subject to pro-rated amounts.

Salary and Wage Reductions

Salary and hourly wage reductions will only be taken into account for loan forgiveness if they are not attributable to an FTEE reduction.

Interim Final Rule #2: Loan Review Procedures and Borrower/Lender Responsibilities

The second interim final rule released on May 22 addresses loan review procedures, as well as borrower and lender responsibilities. Here are some points to highlight:

SBA Review of Individual Loans

The SBA may review any PPP loan as they deem appropriate, and an SBA Administrator is authorized to review any points of borrower eligibility. If they decide that the borrower is ineligible for the full forgiveness amount as approved by a lender, they may request additional information from the applicant (or request that the lender gather more information from the borrower).

Lender Review

Each lender is required to complete four key tasks:

1) Confirm receipt of the borrower certifications in the application

2) Confirm receipt of documentation to aid in verifying payroll and nonpayroll costs

3) Confirm the borrower’s calculations on the loan forgiveness application

4) Confirm that nonpayroll costs to not exceed 25% of the loan forgiveness request

Ultimately, the borrower is responsible for the accuracy of any calculations. The lender must perform a good faith review in a reasonable amount of time and issue a decision to the SBA within 60 days of receiving a completed loan forgiveness application. If the lender denies the loan forgiveness amount, the SBA can conduct a secondary review at the request of the borrower. The borrower must submit such a request within 30 days of receiving denial notice from the lender.

SBA Review

The SBA must notify the lender in writing, but has the option to review a PPP loan of any size at any time for any reasons they see fit. The lender will have five business days to provide the borrower’s application and all supporting documentation when the SBA opts to perform a secondary review.

Lender Fees

If the SBA determines that a borrower was not eligible for a PPP loan, the lender is not allowed to charge a processing fee. If a fee was already charged and the SBA determines that a borrower was ineligible within one year after the disbursement date, the SBA will request repayment of the processing fee for the lender.

More Guidance to Come

As you can see, there are still a lot of details being worked out with PPP loan forgiveness. We expect additional interim final rules to be released providing even more clarity on certain issues that are still a little confusing to borrowers and lenders.

If you received a PPP loan and are applying for loan forgiveness, it’s very important to understand all the rules (even as they are still being defined and refined) and do everything you can to maximize your loan forgiveness amount. It helps to work with a professional business financial advisor who can guide you through the steps and help you do things the right way.

Contact Illumination Wealth today for help with your PPP loan forgiveness application and all your small business’s financial planning needs.