PPP Loan Forgiveness Eligibility

• Loans can be forgiven up to the full principal amount + accrued interest if proceeds are used for a forgivable purpose and employee salary and staffing requirements are met or an applicable safe harbor applies
• The covered period is the earlier of 24 weeks from the date of disbursement or December 31^st, 2020
• Loans made before June 5^th, 2020 may use the 8-week or the 24-week covered period, loans made on, or after, June 5^th must use the 24-week covered period
• Borrower may submit forgiveness application before the end of the 8-week and 24-week covered periods
• At least 60% of eligible costs sought for forgiveness must be eligible payroll expenses

Payroll Expenses

• Payroll expenses: are eligible for 100% forgiveness for the total loan amount
  • Eligible payroll expenses include: Salary/wages/tips (capped at $100,000 annually per employee), employee benefits, employee bonuses, hazard pay, state and local payroll taxes, self-employed wages/commissions/income/net earnings (capped at 100,000 annualized), and normal paid sick leave
  • Qualified Paid Sick Leave and Family leave for which credit is eligible under the Families First Coronavirus Response Act are not eligible payroll expenses
• Covered Period for Determining Forgivable Payroll Expenses
  • The date of disbursement of the PPP loan through the end of the 8-week or 24-week period OR
  • The first day of the first payroll cycle in the covered period (alternative payroll covered period)
  • Costs may be paid or incurred during covered period
  • Payroll costs incurred during the period, but paid after, are eligible for forgiveness if paid on or before the next regular payroll period
• Owner-Employees and Self-Employed Individuals also subject to caps for forgiveness
• https://www.sba.gov/sites/default/files/2020-06/PPP–IFR–Revisions-to-Loan-Forgiveness-Interim-Final-Rule-and-SBA-Loan-Review-Procedures-Interim-Final-Rule-508.pdf

Staffing Levels

• Maintaining Staffing and Salary Levels
  • Borrower must restore full-time equivalent employees (FTE) or employee salary and wage levels to February 15^th, 2020 level by December 31^st, 2020 to avoid reduction in forgiveness amount
    • If borrower restores FTE and submits forgiveness application early, not clear if it is permissible to reduce FTE after forgiveness granted
  • Staffing Level GFE Safe Harbor
    • Borrower will not have a reduction in forgiveness amount due to cutback in FTE employee count if borrower can document in good faith:
      • An inability to rehire individuals who were employees of the borrower on February 15^th, 2020 and the borrower can document an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020

OR

• Borrower can document an inability to return to the same level of business activity as such business was operating at before February 15th, 2020, due to compliance with requirements established or guidance issued by the Secretary of Health and Human Services, Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration from the period beginning March 1^st, 2020 and ending December 31^st, 2020, related to the maintenance of standards and sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19

• If Employee Refuses Offer to be Re-hired
  • Borrower may exclude employee from the loan forgiveness calculation if the Borrower made a good-faith, written offer of rehire and documented the employee’s rejection of that offer

Other Expenses

• Mortgage interest, rent, and utilities are also forgivable up to 40% of the total loan amount.
  • Mortgages and Leases must have been in effect prior to 2/15/2020
• Borrowers must apply for forgiveness through lender
• Expenses must be documented.
• To be eligible, other expenses must be paid during the covered period or incurred during the covered period and paid on or before the next regular billing date.

What Can Reduce Forgiveness Amount

• Less than 60% of the loan amount is used for eligible payroll costs
• Salary/wages reduced by more than 25% for any employee making less than 100,000 annually
• Reduction in number of FTE Employees from February 15^th, 2020 level
  • Unless safe harbor exception
• Any amounts used for non-eligible expenses
• SBA Economic Injury Disaster Loan (EIDL) Effect on PPP Loan
  • If EIDL Loan used for payroll costs, borrower must use PPP loan to refinance EIDLE Loan
  • Proceeds from any EIDL advanced grant of up to $10,000 will be deducted from the loan forgiveness amount on the PPP loan

Borrower Good Faith Certification

• Any borrower receiving a PPP loan for less than 2 million will be deemed to have made the required certification concerning necessity of the loan request in good faith

Loan Forgiveness Application

• Borrower must submit SBA Form 3508 or 3508EZ (or lender equivalent)
• SBA Form 3508EZ
  • Simplified version of the 3508 form, use this if you qualify
  • Eligibility:
    • Borrower is Self-employed with no employees
    • Borrower has employees but did not reduce salary, headcount, and hours during covered period, or
    • Borrower did not reduce salary but was unable to operate at same level due to COVID related orders
    • See Form instructions for detailed eligibility requirements
  • SBA Form 3508
    • If you don’t qualify for the 3508EZ
  • Lender has 60 days from receipt to issue a decision to the SBA. SBA can then approve or deny

 

Remaining Balances

• Any loan amounts not forgiven will be paid back under the terms of the note
• Loans made on or after June 5^th, 2020 have a repayment term of 5 years
  • Borrowers with loans before June 5^th 2020, will have a term of 2 years but may seek a modification from the lender to extend the term out to 5 years for any unforgiven balance
• Payment Deferral Period
  • Payments deferred until the date when the SBA pays the forgiveness amount to your lender (or denies forgiveness application)
  • If borrower does not apply for forgiveness, payments deferred until 10 months after the last day of the covered period
    • 10 months after the earlier of 24 weeks from the date of funding or December 31^st, 2020

Other PPP Issues

• A loan is “made” when the SBA assigns a loan number to the PPP loan
• PPP Flexibility Act states that a borrower shall use at least 60% of proceeds to receive forgiveness
  • SBA interprets this to mean a proportional limit on nonpayroll costs as a share of the borrower’s loan forgiveness amount, rather than a threshold for receiving any loan forgiveness. Remember, this is an agency interpretation contradicting plain language of the law.
• Borrowers receiving PPP loan forgiveness are still eligible for the CARES Act deferment of employer paid social security taxes
• Eligible costs covered by forgiven loan amounts are most likely not tax deductible
  • IRS Notice 2020-32 says no, but there is an argument this contradicts intent of statute and other existing legal authority
• Employee Retention Credit
  • An Employer that receives a PPP Loan is not eligible to claim CARES Act Employee Retention Credits.
• Sources for More Info
  • https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program#section-header-9
  • https://home.treasury.gov/policy-issues/cares/assistance-for-small-businesses
  • https://www.aicpa.org/interestareas/privatecompaniespracticesection/qualityservicesdelivery/sba-paycheck-protection-program-resources-for-cpas.html

Joe Schmitz
At-Large Member
Business Law Section Council

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