More Important Updates – Paycheck Protection Program

May 18, 2020

The Small Business Administration has released a couple of additional key updates to the Paycheck Protection Program since our last news release.  In an effort to keep our clients and associates as informed as possible with the constantly-changing landscape of the PPP loan program, we have summarized a few key updates below;

• Possible Additional PPP Loan Proceeds for Partnerships: The SBA issued a new interim final rule Wednesday night that applies to general, active partners of partnerships.  The SBA previously ruled that partners earning self-employment income from partnerships cannot apply for a PPP loan individually.  Instead, the owner compensation (up to $100,000 annually per partner) should be included on the PPP application for the partnership in addition to payroll costs of employees.  However, this ruling was published after several small businesses had already completed their PPP application and did not include partner compensation in their application.  Now, the SBA is allowing certain businesses to revise their initial application with their lender in order to claim eligible partner compensation.  If you believe your business did not claim eligible owner compensation on its initial application, please contact your lender immediately.  You may be eligible for additional PPP loan proceeds in some circumstances.
• Initial PPP Loan Forgiveness Application: The SBA released their PPP loan forgiveness application this weekend, along with applicable instructions.  You can find the form and instructions here.  The form and accompanying instructions answered several questions regarding loan forgiveness including:
  • Flexibility and Definition on Includable Costs – The CARES Act mentions both payroll costs “paid” and “incurred” in regards to loan forgiveness.  However, for many employers payroll costs incurred are not paid for several days to a week after the costs are “incurred” (or earned).  This caused confusion as to how borrowers were to calculate payroll costs for loan forgiveness.  However, the form and instructions detail that businesses can use either costs incurred or costs paid for calculation of eligible payroll costs.  For costs incurred, they may be paid outside the 8-week period on or before the next regular payroll or billing date.
  • Flexibility on “Covered Period” – The covered period for loan forgiveness generally begins on the day the loan is funded and ends 8 weeks later.  However, the SBA is allowing for an “alternate payroll covered period” for businesses with a bi-weekly (or more frequent) pay schedule.  This alternate period will start on the first day of the first pay period after the loan proceeds are disbursed to the borrower and end 8 weeks (56 days) later.
  • Additional Guidance on Loan Forgiveness Limitations – Potential loan forgiveness is limited based on reduction in full-time equivalent (FTE) employees and/or reduction in wage or salary rates for employees making under $100,000 annually.  Previous guidance on the calculation and ordering of these limitations left several questions unanswered.  However, the worksheets included with the application provide a detailed calculation and orders the limitations so borrowers can more accurately plan for potential reductions in their loan forgiveness.
  • Additional Guidance on Exemption for Re-Hiring Employees – In addition, the PPP loan program provides a safe harbor against loan forgiveness reduction for employers who re-hire employees by June 30^th.  The loan application provides additional guidance on how this safe harbor applies.
  • New Safe Harbor for Good-Faith Offers to Re-Hire Employees – Lastly, due to the federal aid to state unemployment systems during the COVID-19 crisis, as well as fears of the virus spreading, some employees have refused to return to work that were previously laid-off or furloughed.  For employers who received a PPP loan, this can be problematic as they will not incur enough payroll costs to qualify for full loan forgiveness without re-hiring employees.  This new exemption to the FTE requirement for loan forgiveness provides a safe harbor for employers who make a written, good-faith effort to rehire workers which is declined by the workers.

As always, Riney Hancock is committed to keeping you informed so you can make the best decisions for your business and/or family.  While this guidance has been very helpful, there are still several questions left unanswered (including a few new ones) and we will continue to update you every step of the way.

Please contact us if you have any additional questions or would like our assistance in any way.