PPP recipients can apply for loan forgiveness in advance, says SBA

The new guide to the Paycheck Protection Program (PPP) released Monday night states that PPP recipients can apply for loan forgiveness early, but that doing so could cost them money.

In a 34-page Interim Final Rule (IFR) issued in consultation with the Treasury, the US Small Business Administration. USA (SBA) addresses a number of issues related to the PPP, which was created by the Coronavirus Aid, Relief and Economic Security (CARES)) Act, PL 116-136, to provide forgivable loans to small businesses, non-profit organizations and certain other entities affected by the economic impacts of the COVID-19 pandemic and quarantines imposed by the government.

Specifically, the new interim final rule revises the previous guidance to reflect the Flexibility Act of the 2020 Payment Check Protection Program, PL 116-142, which became law on June 5 and made significant changes to the PPP, especially:

  • Extending to 24 weeks, from eight weeks, the covered period during which PPP loan recipients can spend the funds and still qualify for loan forgiveness. The 24-week period applies to all loans made beginning June 5. Borrowers who received loans before June 5 can choose to choose an eight-week period.
  • Reduce to 60% from 75% the proportion of PPP funding that must be used in payroll costs to qualify for full forgiveness.
  • Extend the term for new loans to five years from two years. Borrowers with loans received before June 5 can extend their loan term to five years if their lender agrees.

Most of the changes implemented by the new interim final rule were covered in previous guidance and in PPP loan forgiveness applications released last week. Chief among the new material is the explanation of the advance loan forgiveness application process.

Advance applications for loan forgiveness

Many small businesses have asked if they can apply for PPP loan forgiveness before their covered period expires. The new interim final rule says that if a borrower applies for loan forgiveness before the end of the covered period and has reduced employees’ wages or salaries by more than 25% allowed for full forgiveness, the borrower must consider the reduction Excessive salary for the entire covered period of eight weeks or 24 weeks, whichever corresponds to your loan.

Under that guidance, PPP borrowers who apply for loan forgiveness ahead of time lose a refuge provision that allows them to reinstate wages or salaries before December 31 and avoid reductions in loan forgiveness they receive. For example, if a borrower has a 24-week period ending in November but wants to apply for it in September, any salary reduction greater than 25% starting in September would be calculated for the entire 24-week period, even if the borrower resets wages . by December 31.

An example provided in the provisional final rule shows how the calculations would work:

Example: A borrower is using a 24-week covered period. This borrower reduced the weekly salary of a full-time employee from $ 1,000 per week during the reference period to $ 700 per week during the covered period. The employee continued to work full time during the covered period, with a FTE of 1.0. In this case, the first $ 250 (25% of $ 1,000) is exempt from the reduction of loan forgiveness. The borrower seeking forgiveness will list $ 1,200 as the hourly wage / salary reduction for that employee (the additional weekly reduction of $ 50 multiplied by 24 weeks). If the borrower requests forgiveness before the end of the covered period, he must account for the salary reduction for the entire 24-week covered period (total of $ 1,200).

Other provisional provisions of the final rule

The provisional final rule clarifies that it is the responsibility of the borrower to provide an accurate estimate of the amount of loan forgiveness. Lenders are expected to conduct a good faith review of the borrower’s calculations and supporting documents in a reasonable time, but lenders do not have to independently verify the information reported by the borrower, provided that the borrower:

  • Provide documentation supporting your request, and
  • You attest that you have accurately verified payments for eligible costs.

The IFR reinforces the previous guidance that the SBA will deduct advance amounts of the Economic Damage Disaster Loan (EIDL) from the PPP forgiveness amounts. It also reiterates prior guidance, which includes:

  • Contributions to employer health insurance for S corporation owners cannot be included in calculating payroll costs; however, employer retirement contributions for S corporation owners are eligible costs.
  • For owner-employees and independent workers, including those who file Schedule C, Business profit or lossor Annex F, Profit or loss from agricultureForgiveness for owner compensation is calculated for the eight-week period as compensation of 8 ÷ 52 × 2019, up to a maximum of $ 15,385, in total for all companies. For the 24-week period, the forgiveness calculation is limited to a value of 2.5 months (2.5 ÷ 12) of 2019 compensation, up to $ 20,833, also in total for all companies.

The PPP in summary

Congress created the PPP as part of the $ 2 billion CARES Act. Legislation authorized the Treasury to use the SBA’s 7 (a) small business loan program to finance forgivable loans of up to $ 10 million per borrower that eligible companies could spend to cover payroll, mortgage interest, rents, and utilities .

The loans are available to small businesses that were operational on February 15 with 500 or fewer employees, including nonprofits, veterans organizations, tribal concerns, self-employed individuals, sole proprietors, and independent contractors. Businesses with more than 500 employees in certain industries can also apply for loans.

Congress designed the loans to support organizations facing economic hardships created by the coronavirus pandemic and help them continue to pay employee wages. PPP loan recipients can have their loans fully forgiven if the funds were used for eligible expenses and other criteria are met.

Companies flooded the PPP with loan applications when it launched in early April, claiming the initial $ 349 billion allocated to the program in less than two weeks. Congress allocated an additional $ 310 billion to the program, but loan applications decreased dramatically amid concerns about the program’s original loan forgiveness terms and backlash against well-capitalized companies, including several publicly-traded companies, who received PPP funds. Several of those businesses returned the funds after public and political protests.

As of Monday, the SBA has approved nearly 4.7 million loans totaling $ 515 billion. That leaves more than $ 130 billion available a week before the June 30 deadline to get a PPP loan.

AICPA experts discuss the latest on PPP and other small business aid programs during a weekly virtual town hall. Webcasts, which provide CPE credit, are free to AICPA members. Go to the AICPA Town Hall Series website for more information and to register.

the AICPA SBA Pay Check Protection Program Resource Page It contains resources and tools produced by AICPA to help address the economic impact of the coronavirus.

For more news and reports on coronavirus and how CPAs can handle the challenges related to the outbreak, visit the JofACoronavirus resource page or subscribe to our email alerts for the latest news on PPP.

Jeff Drew ([email protected]) is a JofA Chief editor.