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May 2020

Small Business Administration Releases Critical Guidance on Paycheck Protection Program Loan Forgiveness and Application Review

Last updated May 26, 2020

On May 22, 2020, the Small Business Administration (the “SBA”) released two highly-anticipated interim final rules regarding the Paycheck Protection Program (“PPP”). The first, an interim final rule on PPP loan forgiveness, gives much-needed clarity for borrowers regarding the costs eligible for loan forgiveness and any reduction in such loan forgiveness. The second interim final rule provides borrowers and lenders with additional guidance regarding the SBA’s review of PPP applications to ensure compliance with the Coronavirus Aid, Relief, and Economic Security Act and the SBA’s rules.

The interim final rule on loan forgiveness repeats and expounds on information contained in the previously-released loan forgiveness application. The interim final rule:

  • Explains that, in general, payroll costs paid or incurred during the eight week period beginning on the date of loan disbursement (the “Covered Period”) are eligible for forgiveness;

  • Permits borrowers with bi-weekly or more frequent payroll cycles to seek forgiveness for payroll costs paid or incurred either during the Covered Period or during the eight week period beginning on the first day of the borrower’s first payroll cycle following loan disbursement (the “Alternative Payroll Covered Period”);

  • Clarifies that, to be eligible for forgiveness, payroll costs must be paid during the applicable eight-week period, except that payroll costs incurred during the borrower’s last pay period of the applicable eight-week period are eligible for forgiveness if paid on or before the next regular payroll date after the eight-week period;

  • Explains that payroll costs are considered incurred on the day the employee earns the pay (or, if the employee is not performing work but is still on payroll, on the schedule established by the borrower), and that payroll costs are considered paid either on the day paychecks are distributed or when the borrower originates an ACH credit transaction;

  • Clarifies that the loan forgiveness for payroll compensation paid to owner-employees cannot exceed the lesser of 8/52 of 2019 compensation or $15,385 per individual, in total, across all businesses;

  • Clarifies that bonuses, hazard pay and commission payments made to employees (including salary, wages, or commissions paid to furloughed employees) are eligible payroll expenses for forgiveness purposes (subject to the $15,385 limit per individual);

  • Allows borrowers to seek forgiveness for non-payroll costs paid or incurred during the Covered Period, as long as any non-payroll costs incurred but not paid during the Covered Period are paid on or before the next regular billing date after the Covered Period (subject to the 25% cap on forgiveness of non-payroll costs);

  • Defines full-time equivalent employees (“FTEs”) as those who work 40 hours or more, on average, each week;

  • Grants borrowers the option to determine the full-time equivalency of part-time employees either by dividing the average number of hours each part-time employee was paid per week during the Covered Period by 40, or by assigning a full-time equivalency of 0.5 for each part-time employee;

  • Clarifies that borrowers will not be doubly penalized for a reduction in FTEs and a consequent reduction in salary and wages, because the salary/wage reduction penalty applies only to the portion of the decline in employee salary and wages that is not attributable to the FTE reduction;

  • Provides an exemption to the forgiveness reduction otherwise required due to an FTE reduction, if the borrower has made a good faith, written offer to rehire the employee or restore the employee’s hours, even if the employee has rejected such offer;

  • Confirms that if a borrower restores reductions in employee salaries and wages by June 30, 2020, the borrower will be exempt from any forgiveness reduction otherwise required due to salary and wage reductions;

  • Confirms that if a borrower eliminates reductions in FTE employees by June 30, 2020, the borrower will be exempt from any forgiveness reduction otherwise required due to FTE reductions;

  • Provides that, with respect to employees who are fired for cause, voluntarily resign, or voluntarily request a reduced schedule during the Covered Period or the Alternative Payroll Covered Period (an “FTE Reduction Event”), the borrower may count such employees “at the same full-time equivalency level” as before the FTE Reduction Event, when calculating the FTE reduction penalty;

  • Clarifies that being exempt from a forgiveness reduction rule does not change or affect the requirement that at least 75% of the borrower’s loan forgiveness amount must be attributable to eligible payroll costs.

The interim final rule on PPP loan review provides that:

  • The SBA may review (1) whether a borrower was eligible for a PPP loan (including a review of the SBA’s existing rules on ineligible businesses and affiliation, as modified by the PPP); (2) whether the borrower correctly calculated its maximum loan amount and used the PPP loan for proper purposes; and (3) whether and in what amount the borrower is entitled to forgiveness;

  • The SBA may review a loan of any size and at any time (subject to the six year period discussed below) in its discretion;

  • Borrowers must retain PPP documentation for six years after the date the loan is forgiven or paid in full, and permit representatives of the SBA to access such files upon request;

  • A borrower will have a chance to respond to an inquiry by its lender and the SBA;

  • A borrower will be able to appeal a determination by the SBA that it was ineligible for a PPP loan, or ineligible for the loan amount or loan forgiveness (an appeal process will be set forth in a subsequent interim final rule);

  • Within 60 days of the submission of the forgiveness application, the lender must approve or deny the application or it may deny the application without prejudice if an SBA review is pending.

CSG will continue to track any additional PPP guidance and provide updates. If you have any questions regarding any federal or state economic assistance programs, please reach out to your CSG attorney.

For additional information pertaining to the coronavirus outbreak, please visit CSG's COVID-19 Resource Center.


This publication contains general information on recent legal developments and is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. Attorney Advertising. Prior results do not guarantee a similar outcome.

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