The Small Business Administration (SBA) has released interim final rules on calculating loan forgiveness amounts under the Paycheck Protection Program (PPP). The guidance largely mirrors instructions to the PPP loan forgiveness application, which was published by the SBA on 5/15/20.

Among other things, the rules

(1) confirm that an "alternative payroll covered period" may be used to compute payroll costs;

(2) clarify that salary, wages, and commission payments to furloughed employees are eligible for loan forgiveness, as are bonuses and hazard pay;

(3) provide that requested loan forgiveness amounts for owner-employees and self-employed individuals' payroll compensation can be no more than the lesser of 8/52 of 2019 compensation or $15,385 per individual in total across all businesses; and

(4) clarify that advance payments on mortgage obligations are not eligible for loan forgiveness.

The SBA also has issued interim final rules that inform borrowers and lenders of the agency's process for reviewing PPP loan applications and loan forgiveness applications. The interim final rules are available at https://home.treasury.gov/policy-issues/cares/assistance-for-small-businesses .

As you may have heard, Congress passed a bill providing over $300 Billion in additional funding for the Paycheck Protection Program (PPP).  This is great news if you have not yet received a loan. For those who have received funds or have submitted applications, having a clear understanding of the forgiveness portion of the program will provide peace of mind and clarity moving forward. Key takeaway:  Spend the funds on approved expenses in the eight weeks immediately following the advance of the loan. We are expecting additional guidance from the U.S. Treasury, but here is what we know so far:

What types of expenses will be forgiven under the PPP guidelines? 

1)      Payroll wages, retirement plan contributions, and health benefits

2)      Mortgage interest (incurred before February 15, 2020), rent (for leases in effect before February 15, 2020), and utilities (in service before February 15, 2020)

How can I maximize loan forgiveness?

1)      Eight-week period – Only costs incurred and payments made for forgivable expenses during the eight-week period beginning on the date of the PPP loan advance will result in forgiveness. Businesses may want to consider the timing of their payroll schedule to accommodate as many payroll cycles as possible during the eight-week period.

2)      Maintaining staffing levels – The level of forgiveness will be decreased for those businesses that reduce staff. This will be calculated by comparing the headcount during the eight-week period following the PPP disbursement and either February 15-June 30, 2019, or January 1- February 29, 2020. The percent of decreased headcount is directly proportional to the decrease in the percent of the loan forgiven. For example, if headcount decreases 25%, loan forgiveness will also decrease by 25%.

3)      Rehire grace period – As an incentive to encourage companies to rehire laid off or furloughed workers, the staffing level and pay requirement reductions discussed above may be avoided by rehiring any furloughed or laid off staff and reinstating wage levels that have decreased by more than 25% by June 30, 2020

4)      75% payroll cost minimum – At least 75% of the loan proceeds must be used for payroll costs, as defined by the U.S. Treasury. Unfortunately, payments to independent contractors do not count.

5)      Pay requirements – For individuals earning less than $100,000 per year, at least 75% of total salary must be maintained. If an individual’s earnings over the 8 weeks is less than 75% of the amount previously earned, forgiveness will be reduced by the difference between current wages and 75% of the original wages.

 How do I submit the information needed for the forgiveness application? 

1)      As the lender will process applications for forgiveness, it will be important to provide the lender with the following:

a.       Documents confirming the number of full-time-equivalent employees and pay rates.

For example, reports from a payroll provider, payroll tax filings, documents confirming retirement/health insurance contributions, documents confirming eligible rent, interest, and utility payments such as canceled checks, payment receipts, and account statements.

We expect more updates and changes to be issued in the following weeks and we will provide additional guidance at that time.  IMPORTANT: See our loan forgiveness template here /~maurercp/images/Loan%20Forgiveness%20Template.PDF