On Wednesday, July 1, 2020, the U.S. House of Representatives joined the Senate in passing a measure to extend the deadline to apply for PPP loans from the SBA – the extension passed both Chambers by unanimous vote, and President Trump signed it into law the day it was passed in the House.

The initial application period ended at midnight on June 30; the extension approved will be for 5 weeks, ending August 8, 2020.

At 9:00 a.m. on Monday, July 6, 2020, the SBA resumed accepting PPP loan applications.

For those whose loans have already been approved and the funds received, when you begin your application for loan forgiveness (Form 3508 or Form 3508EZ), you may be wondering whether the SBA will come back to you with questions concerning your certification (when applying for the PPP loan) in good faith that “Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”

If your loan is for an amount less than $2 million, the answer is “probably not.”

According to the SBA’s PPP FAQs:

46. Question: How will SBA review borrowers’ required good-faith certification concerning the necessity of their loan request?

Answer: When submitting a PPP application, all borrowers must certify in good faith that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” SBA, in consultation with the Department of the Treasury, has determined that the following safe harbor will apply to SBA’s review of PPP loans with respect to this issue: Any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith.

However, the SBA does reserve the right to review any and all PPP loans “as appropriate.”

To support your good faith certification, should the SBA come asking, you should maintain a file of all documentation you can muster – internal and external correspondence, written or electronic, concerning any changes in staffing, e.g., employee pay, layoffs or resignations, and/or offers of rehire.

Any unusual circumstances or changes to processes such as purchasing supplies should also be documented – if you had to go to an unusual supplier because of the impact of COVID-19, keep these invoices together, along with any correspondence illustrating the necessity of the change.

Know and document the ways in which the coronavirus affected your industry (both nation-wide and in-state) and your operations, and the impact(s) of Federal, State, and local regulations on that industry and your business in particular.

In addition to maintaining documentation, it might be wise, especially for those with larger PPP loans, to write a narrative memo, drawing on all the facts and circumstances affecting your business during this time of uncertainty, and supporting the good faith of your certification that the loan was necessary.

These are just a few examples of what you can do – and remember, this is the Federal Government – less is not more in these circumstances. Redundancy is better than falling short. If you have questions or concerns, consult your advisor.

Tune in next week – there is bound to be something new coming.

If you have questions on the PPP, please click here to email us directly – we are here to help.

Until next Wednesday –

Peace,

Eric

On Wednesday, July 1, 2020, the U.S. House of Representatives joined the Senate in passing a measure to extend the deadline to apply for PPP loans from the SBA – the extension passed both Chambers by unanimous vote. The application period ended at midnight on June 30; the extension approved will be for 5 weeks, ending August 8, 2020.

President Trump is expected to sign the bill into law.

While the SBA has approved nearly 4.9 million PPP loans, aggregating more than $520 billion, roughly $129 billion in PPP loan funds remained undistributed at 5:00 PM on Tuesday.

These loans are available to small businesses which were in operation as of February 15, 2020, and have 500 or fewer employees. Self-employed individuals, sole proprietorships and independent contractors are all eligible for PPP loans.

We think it is a great idea to extend the deadline, since funds are available and some businesses which were reluctant to apply at first but changed their minds may have felt the deadline loomed too close, and didn’t apply.

Stay tuned for further developments, which will be coming!

If you have questions on the PPP, please click here to email us directly – we are here to help.

Until next Wednesday –

Peace,

Eric

Late last week, the U.S. Small Business Administration (SBA) issued revised PPP Loan Forgiveness Applications, and on Monday, June 22, 2020 they issued a new Interim Final Rule, bringing the application into conformity with the Paycheck Protection Program Flexibility Act, which was signed into law by President Trump on June 5, 2020.

We use the plural, as the SBA has not only updated Form 3508, PPP Loan Forgiveness Application and Instructions, but has also issued Form 3508EZ and Instructions.

Per the Form 3508EZ Instructions, this simplified form can be used by borrowers who fulfill any one of three criteria:

1. “The Borrower is a self-employed individual, independent contractor, or sole proprietor who had no employees at the time of the PPP loan application and did not include any employee salaries in the computation of average monthly payroll in the Borrower Application Form (SBA Form 2483).”

OR

2. “The Borrower did not reduce annual salary or hourly wages of any employee by more than 25 percent during the Covered Period or the Alternative Payroll Covered Period (as defined below) compared to the period between January 1, 2020 and March 31, 2020 (for purposes of this statement, “employees” means only those employees that did not receive, during any single period during 2019, wages or salary at an annualized rate of pay in an amount more than $100,000);
AND
The Borrower did not reduce the number of employees or the average paid hours of employees between January 1, 2020 and the end of the Covered Period. (Ignore reductions that arose from an inability to rehire individuals who were employees on February 15, 2020 if the Borrower was unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020. Also ignore reductions in an employee’s hours that the Borrower offered to restore and the employee refused. See 85 FR 33004, 33007 (June 1, 2020) for more details.”<br

OR

3. “The Borrower did not reduce annual salary or hourly wages of any employee by more than 25 percent during the Covered Period or the Alternative Payroll Covered Period (as defined below) compared to the period between January 1, 2020 and March 31, 2020 (for purposes of this statement, “employees” means only those employees that did not receive, during any single period during 2019, wages or salary at an annualized rate of pay in an amount more than $100,000);
AND
The Borrower was unable to operate during the Covered Period at the same level of business activity as before February 15, 2020, due to compliance with requirements established or guidance issued between March 1, 2020 and December 31, 2020 by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to the maintenance of standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19.”

The SBA’s June 22, 2020 interim final rule clarifies that borrowers may apply for PPP loan forgiveness prior to the end of their covered period, whether they elect an 8-week or a 24-week covered period. However, this can be a two-edged sword, as those borrowers applying for early loan forgiveness forfeit the safe-harbor provision which allows them to restore reduces salaries or wages by December 31, 2020 to avoid having to reduce the amount of the loan which is eligible for forgiveness.

PPP loan maturity can be extended from 2 to 5 years, if both borrower and lender agree – lenders may be reluctant to extend the maturity date, as interest on PPP loans is 1%.

Sole proprietors who elect a 24-week covered period are eligible for payroll-related loan forgiveness of up to $20,833, an increase from the limit of $15,385 for an 8-week covered period. These maximum loan forgiveness amounts are based upon a maximum covered owner compensation of $100,000 annually.

Stay tuned for further developments, which we all know will be forthcoming!

If you have questions on the PPP, please click here to email us directly – we are here to help.

Until next Wednesday –

Peace,

Eric

On Tuesday, June 16, 2020, the U.S. Small Business Administration (SBA) issued a new Interim Final Rule concerning the Paycheck Protection Program (PPP) and loan forgiveness, to bring its guidance in-line with the Paycheck Protection Program Flexibility Act, which was signed into law by President Trump on June 5, 2020. The Act is retroactive to March 27, 2020 – the date the CARES Act, which created the PPP, was signed into law.

This Interim Final Rule revises the previous third and sixth Interim Final Rules published on April 14, 2020, and April 28, 2020, respectively, and specifically addresses the amount of employee compensation which may be forgiven under the extended 24-week covered period. While forgivable employee compensation was previously capped at $15,385 per individual, based on the annual covered salary cap of $100,000 and an 8-week covered period, the cap under the new 24-week covered period is $46,154 per individual employee. The annual covered salary cap remains at $100,000 per employee.

However, owner compensation is specifically excluded from the $46,154 cap, although the forgivable figure does rise from the previous $15,385 cap under an 8-week covered period to $20,833 (a multiplier of 2.5 months is used for 24-week covered periods).

The Interim Final Rule justifies this limit by noting that maximum PPP loan amounts are based upon a 2.5 multiplier of a business’ average monthly payroll during the one-year period preceding the loan.

“For example, a borrower with one other employee would receive a maximum loan amount equal to five months of payroll (2.5 months of payroll for the owner plus 2.5 months of payroll for the employee). If the owner laid off the employee and availed itself of the safe harbor in the Flexibility Act from reductions in loan forgiveness for a borrower that is unable to return to the same level of business activity the business was operating at before February 15, 2020, the owner could treat the entire amount of the PPP loan as payroll, with the entire loan being forgiven. This would not only result in a windfall for the owner, by providing the owner with five months of payroll instead of 2.5 months, but also defeat the purpose of the CARES Act of protecting the paycheck of the employee.”

For sole-proprietorships with no employees, income replacement would now be equal to the amount of the loan, which would be $20,833.

Notably, this new Rule does not address or revise the Interim Final Rule issued on May 23, 2020, concerning the treatment under the PPP of owner-employees and their compensation.

We expect guidance on owner-employee compensation in the coming days – be very sure we will keep you posted.

For loans disbursed prior to June 5, 2020, the 2-year maturity date remains in effect, unless the borrower and lender agree to an extension, which can be up to a 5-year maturity date. For loans made after June 5, 2020, maturity is set at 5 years.

To read the new Interim Final Rule, click here.

It is worth noting that some $120 billion in PPP loan funds have not yet been distributed – it is not too late to apply, if you qualify. The deadline to apply for a PPP loan is June 30, 2020.

It is our recommendation to PPP borrowers that you track your covered expenses and time periods meticulously, and that you gather and maintain documentation verifying the number of full-time equivalent employees and their pay rates (there are several dates for which this one task must be performed), as well as your payments of eligible payroll costs, eligible mortgage and interest payments, rent, and utilities.

Stay tuned for further developments, which we all know will be forthcoming!

If you have questions on the PPP, please click here to email us directly – we are here to help.

Until next Wednesday –

Peace,

Eric

On Monday, June 8, 2020, Treasury Secretary Steven Mnuchin and SBA Administrator Jovita Carranza issued a joint statement clarifying that partial forgiveness of PPP loans will be available to borrowers who do not meet the “60% threshold,” i.e., those whose payroll-related expenses are less than 60% of their PPP loan expenditures.

The Paycheck Protection Program Flexibility Act was passed by the House of Representatives 417-1 on May 27, 2020, by the Senate unanimously on June 3, 2020, and was signed into law by President Trump on June 5, 2020.

Despite the unanimous Senate vote, several senators had expressed concerns regarding the language, which could be interpreted as imposing a 60% “cliff,” disallowing any PPP loan forgiveness for borrowers who did not meet the 60% threshold.

However, a co-sponsor of the House bill had confirmed that there was no intention of cutting off borrowers from partial loan forgiveness. The new guidance confirms that Congressional intent, subject to the proviso that loan forgiveness amounts will be based upon 60% of the amount forgiven having been spent on payroll-related costs.

The SBA has promised “prompt” new rules and guidance, formulated in consultation with the Treasury Department; we will continue to keep you informed.

It is worth noting that some $120 billion in PPP loan funds have not yet been distributed – it is not too late to apply, if you qualify. The deadline to apply for a PPP loan is June 30, 2020.

If you are at all uncertain about PPP loan forgiveness or the PPP Loan Forgiveness Application, please seek guidance from your advisor. You will want to make sure you get your facts and figures in order before submitting your loan forgiveness application to your lending institution.

We continue to recommend that you track your covered expenses and time periods meticulously, and that you gather and maintain documentation verifying the number of full-time equivalent employees and their pay rates (there are several dates for which this one task must be performed), as well as your payments of eligible payroll costs, eligible mortgage and interest payments, rent, and utilities.

Stay tuned for further developments, which will certainly be forthcoming!

If you have questions on the PPP, please click here to email us directly – we are here to help.

Until next Wednesday –

Peace,

Eric

On Thursday, June 3, 2020, the U.S. Senate passed the House Paycheck Protection Program Flexibility Act by unanimous vote.

There is good news here – the legislation, now with President Trump for signature:

• Extends the window businesses have to use the PPP Loan funds (covered period) from 8 weeks to 24 weeks.

• Reduces the percentage of PPP loan proceeds which are required to be used for payroll-related expenses from 75% to 60%, leaving 40% available for other covered expenses, such as rent, mortgage payments, and utilities.

• Pushes the June 30, 2020 deadline for rehiring workers (in order for those employees not to count against an employer’s PPP loan forgiveness) to December 31, 2020.

• Provides flexibility for business owners who can demonstrate that they were unable to rehire workers, or that they were unable to open due to government mandated business closures or inability to meet safety standards and still maintain the same number of workers.

• Extends the repayment period for PPP loans from 2 years following issuance of the loan to 5 years. Interest of 1% is unchanged.

However, several Senators voted “yea” despite concerns. Senator Susan Collins of Maine noted that under the current drafting, small businesses whose payroll-related costs fall under 60% of PPP loan expenditures will be ineligible for any loan forgiveness. This is a departure from previous language, which allowed for proportional forgiveness even if an employer did not meet the 75% threshold.

Other concerns included the lack of granular data from the SBA on actual loans approved and funded, despite Senate requests dating back weeks.

Majority Senate Leader Mitch McConnell acknowledged the bill’s flaws, but stressed the need for immediate action. He stated his hopes that the flaws would be addressed by Congress in the future.

Nevertheless, we commend the Senate action as necessary – particularly for businesses in which payroll costs are lower compared with other overhead, such as those in the restaurant industry.

It is worth noting that some $120 billion in PPP loan funds have not yet been distributed – it is not too late to apply, if you qualify.

If you are at all uncertain about PPP Loan Forgiveness or the Application, please seek guidance from your advisor. You will want to make sure you get your facts and figures in order before submitting your loan forgiveness application to your lending institution.

New legislation notwithstanding, we recommend that you track your covered expenses and time periods meticulously, and that you gather and maintain documentation verifying the number of full-time equivalent employees and their pay rates (there are several dates for which this one task must be performed), as well as your payments of eligible payroll costs, eligible mortgage and interest payments, rent, and utilities.

Stay tuned for further developments, which will be coming!

If you have questions on the PPP, please click here to email us directly – we are here to help.

Until next Wednesday –

Peace,

Eric

On Wednesday, May 27, 2020, the U.S. House of Representatives passed the Paycheck Protection Program Flexibility Act by a vote of 417-1.

Senate Majority Leader Mitch McConnell has said he hopes to bring the bill to a Senate vote “soon.”

There is good news here – the House bill:

• Extends the window businesses have to use the PPP Loan funds (covered period) from 8 weeks to 24 weeks.

• Reduces the percentage of PPP loan proceeds which are required to be used for payroll-related expenses from 75% to 60%, leaving 40% available for other covered expenses, such as rent, mortgage payments, and utilities.

• Pushes the June 30, 2020 deadline for rehiring workers (in order for those employees not to count against an employer’s PPP loan forgiveness) to December 31, 2020.

• Provides flexibility for business owners who can demonstrate that they were unable to rehire workers, or that they were unable to open due to government mandated business closures or inability to meet safety standards and still maintain the same number of workers.

• Extends the repayment period for PPP loans from 2 years following issuance of the loan to 5 years. Interest of 1% is unchanged.

However, the Senate has not yet voted on the House bill, and there is some opposition to it in its present form. Some Senators favor an alternate bill, which would extend covered period to 16 weeks, rather than 24 weeks, and would retain the mandate that 75% of loan proceeds be spent on payroll-related expenses for businesses to obtain loan forgiveness.

In the meanwhile, at this point in time PPP loan forgiveness is governed by existing guidance, including the latest two Interim Final Rules issued on May 22, 2020 (read our blog post on these Rules here).

To download the PPP Loan Application Forgiveness package, please click here.

It is worth noting that some $120 billion in PPP loan funds have not yet been distributed – it is not too late to apply, if you qualify.

If you are at all uncertain about PPP Loan Forgiveness or the Application, please seek guidance from your advisor. You will want to make sure you get your facts and figures in order before submitting your loan forgiveness application to your lending institution.

New and potential legislation notwithstanding, we recommend that you track your covered expenses and time periods meticulously, and that you gather and maintain documentation verifying the number of full-time equivalent employees and their pay rates (there are several dates for which this one task must be performed), as well as your payments of eligible payroll costs, eligible mortgage and interest payments, rent, and utilities.

Stay tuned for further developments, which will be coming!

If you have questions on the PPP, please click here to email us directly – we are here to help.

Until next Wednesday –

Peace,

Eric

On Tuesday, June 30, 2020, the U.S. Senate passed a measure to extend the deadline to apply for PPP loans from the SBA by unanimous vote. The application period ended at midnight on June 30; the extension approved would be for 5 weeks, ending August 8, 2020.

While the SBA has approved nearly 4.9 million PPP loans, aggregating more than $520 billion, roughly $129 billion in PPP loan funds remained undistributed at 5:00 PM on Tuesday.

These loans are available to small businesses which were in operation as of February 15, 2020, and have 500 or fewer employees. Self-employed individuals, sole proprietorships and independent contractors are all eligible for PPP loans.

We think it is a great idea to extend the deadline, since funds are available and some businesses which were reluctant to apply at first but changed their minds may have felt the deadline loomed too close, and didn’t apply.

However, this is only a Senate measure at present. The extension would need approval from the U.S. House of Representatives, and, of course, the President’s signature.

And both houses of Congress are set to adjourn for a two-week recess by the end of this week, so action would need to be very swift indeed if the extension were to be put in place before the 4th of July holiday.

While we would definitely welcome full enactment of the 5-week extension this week, we are not holding our breath. Still, we are heartened that our small businesses are still a Congressional focus.

Stay tuned for further developments, which will be coming!

If you have questions on the PPP, please click here to email us directly – we are here to help.

Until next Wednesday –

Peace,

Eric

On Friday, May 22, 2020, the Small Business Administration (SBA) published new Interim Final Rules addressing some of the questions raised or remaining following the release of their Paycheck Protection Program (PPP) Loan Forgiveness Application.

To download the PPP Loan Application Forgiveness package, please click here.

The new Interim Final Rules provide clarity on several points, including:

• Alternative 8-week payroll covered period – this applies to borrowers with weekly, bi-weekly, or other payroll periods more frequent than semi-monthly. A borrower may elect to begin their 8-week period on the first payroll date following receipt of their PPP loan proceeds.

• Bonuses and hazard pay have been clarified as payroll costs eligible for forgiveness, as are salary, wage, or commission payments to furloughed employees. Total eligible compensation, including the above, is capped at $100,000 per year per employee.

• Eligible non-payroll costs (e.g., rent, mortgage interest, utilities) may be paid during the 8-week period. Alternatively, these costs may be incurred during that period and paid on or before the next billing date, even if that date is after the 8-week period has concluded.

• Additional requirements regarding laid-off or furloughed employees who refuse to return to work following a good-faith offer by the borrower. The offer and the refusal must be documented in writing, and the offer must be for the same number of hours and at the same salary or wage as the employee worked and was paid prior to their layoff or furlough. The borrower must inform their State Unemployment Office of such refusal of rehire within 30 days of the former employee’s refusal to accept the borrower’s good-faith written offer. If these requirements are met, these former employees will not be counted against forgiveness of the borrower’s PPP loan debt.

• Per the May 22, 2020, Interim Final Rules, an employee who is “fired for cause, voluntarily resigns or voluntarily requests a schedule reduction,” will not be counted as no longer being employed by the borrower for the “fewer employees” reduction test.

• Lenders are required to determine PPP loan forgiveness eligibility within 60 days of receipt of an application for such forgiveness. The SBA will issue its own determination within 90 days of its own receipt of the application from the lender.

• The SBA may question both borrowers and lenders concerning an application for PPP loan forgiveness. The SBA may review calculations, eligibility, etc., and make its own calculations in order to determine either eligibility for the PPP loan itself or any eligible loan forgiveness. On the other hand, the SBA may simply accept a lender’s certification on a loan forgiveness application.

• Borrowers may appeal an adverse SBA determination within 30 days of receipt. The appeal process has yet to be established; the SBA promises specifics in a later Interim Final Rule.

Meanwhile, bills are being considered, both in the Senate and the House of Representatives, proposing modification to the PPP. The House is expected to vote this week on a standalone bill to extend the “covered period” to 24 weeks and eliminate the requirement that 75% of loan proceeds must be spent on eligible payroll-related costs for forgiveness eligibility.

The corresponding Senate bill also proposes a 24-week “covered period,” and elimination of the “75% Rule.”

We know this is not the final guidance the SBA will issue on PPP loan forgiveness, and that additional legislation may make substantial changes to the rules governing the program. It is, nonetheless, the best we have for the time being, and we recommend that borrowers get started with their preliminary calculations now.

If you are at all uncertain about the PPP Loan Forgiveness Application, please seek guidance from your advisor. You will want to make certain you get your facts and figures in order before submitting your loan forgiveness application to your lending institution.

To view the first new Interim Final Rule on PPP Loan Forgiveness Application, please click here.

To view the second new Interim Final Rule on PPP Loan Forgiveness Application, please click here.

Once again, we recommend that you track your covered expenses and time periods meticulously, and that you gather and maintain documentation verifying the number of full-time equivalent employees and their pay rates (there are several dates for which this one task must be performed), as well as your payments of eligible payroll costs, eligible mortgage and interest payments, rent, and utilities.

Stay tuned for further developments, which will be coming!

If you have questions on the PPP, please click here to email us directly – we are here to help.

Until next Wednesday –

Peace,

Eric

On Friday, May 15, 2020, the Small Business Administration (SBA) published its application for forgiveness of Paycheck Protection Program (PPP) loans issued pursuant to the CARES Act. The application, together with instructions, is 11 pages long.

Unfortunately, many borrowers are already half-way through their 8-week “covered period,” and could have used the information from the SBA more effectively had it come earlier and with less confusing and ambiguous explanations.

Note that this is in all likelihood not the last guidance the SBA will issue on PPP loan forgiveness – so we cannot treat this as the final word.

However, it is what we have, and we recommend that borrowers get started with their preliminary calculations now.

We cannot recommend too strongly that if you are at all uncertain about the PPP Loan Forgiveness Application, you seek guidance from your advisor.

PPP Loan amounts spent on “covered” expenses during a period following receipt of the funds can considered “forgivable,” if the SBA guidance is specially followed. There is some flexibility in what constitutes the 8-week period (56 day), particularly for businesses which issue payroll more than bi-weekly, they may start their 8-week period beginning on the date of their first payroll following receipt of loan proceeds; in addition, some expenses incurred before the 8-week period may be deductible if they are paid during that period, as well as some expenses incurred during the 8-week period but paid afterward.

Per the PPP Loan Forgiveness Application, the maximum allowable amount to be forgiven is the principal amount of the loan, not including any accrued unpaid interest. This is in line with the wording of the CARES Act, but is contrary to a previous Interim Final Rule.

Please note that while the language of the CARES Act generally defines a full-time employee as one working 30 hours or more per week, the SBA loan forgiveness calculations are based upon a 40-hour work week.

While borrowers are expected to maintain full-time equivalent employment at 75% of pre-COVID levels or better, if an employee has left, either voluntarily or by request, and refuses a good faith written offer to re-hire, this reduction will not be counted against a borrower’s loan forgiveness. Wage and salary levels must also be maintained at 75% or greater than pre-COVID.

Lenders are required to issue a decision on loan forgiveness applications within 60 days of receipt.

To view the PPP Loan Forgiveness Application and instructions, please click here.

It must be said that the application for loan forgiveness (particularly the supporting schedules and related calculations) make the initial PPP Loan Application look simplistic, which of course it is not, but, remember, this is the federal government. You want to make sure you get this right before submitting this form to your lending institution.

We recommend that you track your covered expenses and time periods meticulously, and that you gather and maintain documentation verifying the number of full-time equivalent employees and their pay rates (there are several dates for which this one task must be performed), as well as your payments of eligible payroll costs, eligible mortgage and interest payments, rent, and utilities.

Stay tuned for further developments, which will be coming!

If you have questions on the PPP, please click here to email us directly – we are here to help.

Until next Wednesday –

Peace,

Eric