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PPP Loans – New Guidance for Loans Under $50K, Clarification on Deadlines

14 October 2020

For those whose Paycheck Protection Program (PPP) Loans were under $50,000, there’s some good news! On Friday, October 9, 2020, the SBA released a new Interim Final Rule and a new PPP Loan Forgiveness Application, Form 3508S, specifically for these loans.

These loans are not receiving automatic forgiveness, but there are some simplifications, and some significant changes to the rules governing forgivable eligible expenses.

In particular, loan recipients of proceeds under $50,000 must still calculate forgivable amounts, but as long as payroll and related expenses account for 60% of the total requested forgiveness amount, the requirement that salaries or wages for employees during the covered period (whether 8 or 24 weeks) remain in parity with the first quarter of 2020 for full forgiveness eligibility has been waived for these loans.

In addition, the loan recipient will not be penalized for reducing the number of full-time equivalent (FTE) employees during the covered period. Again, this assumes that actual payroll and related costs represent 60% of the requested forgiveness amount.

For PPP loans disbursed after June 5, 2020, the default covered period is the 24-week period beginning on the day the loan funds were received. If you received your loan disbursement prior to that date, you can still elect an 8-week covered period. We only recommend using an 8-week period if it is beneficial or neutral in fiscal impact (e.g., if you used up your PPP loan funds during the 8-week period and did not reduce salaries, wages, or headcounts during that period as compared with the first quarter of 2020).

However, if your first payroll date falls after the date the loan proceeds are received, you can elect an alternative payroll covered period beginning the date of your first payroll following receipt of your loan disbursement. This period is electable for purposes of payroll and related costs only. For non-payroll expenses eligible for forgiveness, the 8- or 24-week covered period is not adjustable.

Expenses, payroll and non-payroll, are eligible for forgiveness if they are “paid or incurred” during the covered period. For example, if your first payroll is the same date you received PPP loan proceeds, these costs are eligible because they were paid during the covered period. Similarly, if your 24-week period ends October 31, and you have payroll due November 1, those costs are also eligible for forgiveness, insofar as the salaries and wages were earned, and therefore incurred as expenses by the loan recipient, prior to November 1.

Note that, to be eligible as a PPP-covered expense, lease, rental, or mortgage payments must be incurred under a lease or mortgage entered into prior to February 15, 2020.

While calculations of amounts eligible for forgiveness, payroll- and non-payroll related, should be documented and maintained, as the SBA always reserves the right to demand that you “show your work,” the new Form 3508S does not required you to show this work up front, although your lender will require some supporting documentation illustrating eligible payroll and non-payroll costs.

In addition to the new Interim Final Rule released last Friday, on Tuesday, October 13, 2020, the SBA released revised forgiveness FAQs, in response to questions regarding deadline to apply for PPP loan forgiveness – the application forms themselves (3508, 3508EZ, and 3508S) clearly read, “Expiration Date: 10/21/2020.” The SBA has clarified that:

“Borrowers may submit a loan forgiveness application any time before the maturity date of the loan, which is either two or five years from loan origination.”

However, PPP loan recipients should bear in mind that loan payments themselves are deferred only until 10 months following the conclusion of the covered period.

We can be fairly certain we have not heard the SBA’s last word on PPC guidance – stay tuned!

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

Until next Wednesday –

Peace,

Eric

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