Latest PPP Guidance Provides More Pieces to the PPP Puzzle
After more than a month without additional
guidance from the Treasury or the SBA, new guidance was released on August 4th
in the form of Frequently Asked Questions on Loan Forgiveness. Many borrowers have completed their
covered periods and spent most or all of their PPP funds at this point.
Accordingly, this guidance will be most helpful to those who have elected to
use a 24-week covered period or have yet to apply for a PPP loan. If you have
spent all of your PPP funds already, take solace in the fact that the SBA has clarified that borrowers may
rely on the guidance available at the time of their application. With that out
of the way, I have outlined some of the new pieces to the PPP puzzle below.Timing
Timeline for
Applying for ForgivenessBorrowers must apply for forgiveness within 10 months
of the completion of their covered period.
PaymentsBorrowers do not
need to begin making payments on amounts not forgiven until the forgiveness
amount is remitted to the lender by the SBA. Interest accrues on amounts owed
during the time between the disbursement of the funds and the SBA’s remittance
of the forgiveness amount on any amount that is not forgiven. After the lender
receives notice from the SBA of the forgiveness amount, the lender is
responsible for notifying the borrower of the forgiveness amount and the date
on which the first payment is due. After that, the amount not forgiven must be
repaid by the maturity date of the loan. Note that the maturity of the loan is
5 years if the loan was issued after June 5, 2020. For loans issued prior to
June 5, the maturity date is 2 years, unless a different arrangement is reached
between the lender and the borrower.Payroll Costs
Cash v. Accrual
BasisAccrual
basis is reaffirmed for payroll costs incurred prior to the covered period, but
paid during the covered period, and payroll costs incurred during the covered
period, but paid by the next payroll date after the covered period.
Cash Compensation
and CalculationAll forms of cash compensation are includable as payroll costs (subject to the
$100k annualized limit). This includes: tips, commissions, bonuses, and hazard
pay. In calculating cash compensation to employees, it was not previously clear
whether this would include the gross or net amount. The newest guidance
clarifies that the gross amount before deductions for taxes, employee benefits
payments, and similar payments should be used for calculating cash
compensation.
Group Health
BenefitsAlthough not previously clear, the guidance clarified that forgiveness is not
provided for group health payments accelerated from periods outside of a
borrower’s covered period. However,
those group health benefits payments by borrowers on behalf of employees that
were incurred or paid during the covered period are still eligible for
forgiveness.
Retirement
ContributionsAs
with group health benefits, forgiveness is not provided for employer
contributions for retirement benefits accelerated from periods outside of a
borrower’s covered period. However,
employer contributions for retirement benefits on behalf of employees that were
incurred or paid during the covered period are still eligible for forgiveness.
Owner CompensationThe guidance has
provided detailed guidance on amounts paid to owners that are eligible for
forgiveness for owners of C. Corps, S. Corps, Self-Employed Individuals,
General Partners, and LLC Owners. Non-Payroll Costs
Alternative Covered
PeriodFor payroll costs, borrowers may elect an alternative covered period, beginning
on their first payroll date after receiving their funds. However, this is not
permitted for non-payroll costs. For non-payroll costs, the covered period is
limited to the period beginning on the date of the disbursement of the PPP
loan.
Cash vs. Accrual
BasisAccrual
basis is reaffirmed for non-payroll costs incurred prior to the covered period,
but paid during the covered period, and non-payroll costs incurred during the
covered period, but paid during the next regular billing date after the covered
period.
Prepayments of Non-Payroll
CostsPrepayment of all non-payroll costs (except for mortgage payments) is not
prohibited.
Unsecured DebtsInterest payments
on unsecured debts are not eligible for forgiveness. Forgiveness is limited to
interest payments on business mortgages on real or personal property (like auto
loans).
Renewal of Leases
and Refinancing of MortgagesPayments on leases renewed during the
covered period or mortgages that were refinanced during the covered period are
eligible for forgiveness, so long as the obligation under the original
agreement existed prior to February 15, 2020. Prepayments on lease obligations
are not expressly prohibited.
Transportation CostsPrior to the
latest guidance, there was much confusion as to what constituted
“transportation costs” as a permitted non-payroll cost. The guidance clarified
that “transportation costs” refers to transportation utility fees assessed by
state and local governments. Forgiveness Reductions
Comparison Period
for Seasonal EmployersSeasonal employers are to use the same 12-week period
used for calculation of their loan amount as the period used for calculation of
any reduction in the amount of loan forgiveness.
Employees Making
More Than $100kBorrowers are to include those employees who made more than $100,000 in 2019 on
their forgiveness applications.
Reductions to
CompensationFinally, the guidance clarified that only decreases to an employee’s salary or
wages are to be counted against a borrower for purposes of reductions to its
forgiveness amount, as opposed to all reductions to that employee’s
compensation.
