PPP Guidance Released June 22: Apply for Loan Forgiveness Early
PPP loan recipients can apply for loan forgiveness before their 24-week covered period ends, according to the Small Business Administration (SBA) and US Treasury Interim Final guidance issued Monday, June 22, 2020. This guidance follows the Paycheck Protection Program (PPP) Flexibility Act (Flexibility Act) of 2020 which was signed into law by the President on June 5, 2020. The guidance provides borrowers and lenders with more certainty on both loan requirements and loan forgiveness requirements following the enactment of the Flexibility Act.
PPP borrowers who needed fewer weeks than the initial 8-week or 24-week covered period to effectively utilize their PPP funds may now apply for PPP loan forgiveness prior to the end of the covered period or maturity date of the loan, if the borrower has used all of the loan proceeds for which the borrower is requesting forgiveness.
A potential risk involved with an early application for loan forgiveness exists if the employer has reduced any employee’s salaries or wages in excess of 25%. In that case, the borrower must account for the excess salary reduction for their full 8-week or 24-week covered period. Note that for loans received before June 5, 2020, the 8-week covered period is an election chosen on the loan forgiveness application, so this revised reduction will apply to covered periods between 9 and 24 weeks in practice, as the majority of loan recipients received their deposits before June 5. PPP loans from the second tranche of lending or received after June 5 will have a 24-week covered period. PPP borrowers who have reduced any employee wages more than 25% will forgo the safe harbor of restoring that employee’s salary by December 31, 2020, for the purpose of loan forgiveness calculations.
A benefit of choosing the full 24-week period is to have more time to fully utilize PPP fund on payroll expenses, and limit the additional documentation otherwise needed for other allowable expenses, e.g., lease agreements.
Uncertainties surrounding an employer’s ability to keep employee levels restored through the end of this year due to COVID-19 may incentivize employers to apply for loan forgiveness early because they have more certainty about their full-time equivalent levels now. Additionally, the loan liability may be able to be cleared from financial statements if the borrower is entitled to loan forgiveness. If loan forgiveness is known before the end of the year, the accounting for non-deductible expenses and cancellation of debt income can be simplified.
The borrower must complete and submit the Loan Forgiveness Application (SBA Form 3508, 3508EZ, or lender equivalent) to their lender. The lender has 60 days to issue its decision to the SBA and request payment, if warranted. The SBA has 90 days to, subject to any SBA review of the loan or loan application, remit the appropriate forgiveness amount to the lender, plus any interest accrued through the date of payment, minus any Economic Injury Disaster Loan (EIDL) Advance Amounts. The lender is responsible for notifying the borrower of the forgiveness amount, and of remittance by SBA of the loan forgiveness amount. If only a portion of the loan is forgiven, or if the forgiveness request is denied, any remaining balance due on the loan must be repaid by the borrower on or before the maturity date of the loan. The general loan forgiveness process described above applies only to loan forgiveness applications that are not reviewed by the SBA prior to the lender’s decision on the forgiveness application. The SBA will review all PPP loans greater than $2 million and reserves the right to review any PPP loan application for any amount.
The SBA and Treasury announced they will disclose to the SBA the business names, addresses, NAICS codes, zip codes, business type, demographic data, non-profit information, jobs supported, and Paycheck Protection Program (PPP) loan amount ranges the interests of both transparency and protections for small businesses.
“We are striking the appropriate balance of providing public transparency, while protecting the payroll and personal income information of small businesses, sole proprietors, and independent contractors,” said Secretary Steven T. Mnuchin.
The loan ranges will be disclosed as follows:
- $150,000 – $350,000
- $350,000 – $1 million
- $1 million – $2 million
- $2 million – $5 million
- $5 million- $10 million
These categories account for nearly 75 percent of the loan dollars approved. For loans below $150,000, totals will be released, aggregated by zip code, by industry, by business type, and by various demographic categories.