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PPP Loan Forgiveness Updates

August 5, 2020

The Small Business Administration (SBA) issued additional “Frequently Asked Questions” on Tuesday dealing with forgiveness of the Paycheck Protection Program loans created by the CARES Act earlier this year.  Attached is a link to the SBA website where the full text of the FAQ’s are available.

We here at Riney Hancock want to keep our clients and contacts as informed as possible about these regulatory updates so we’ve noted some highlights for you below (take special note of the Owner Compensation discussion below):

General Loan Forgiveness FAQ’s 

  1. For self-employed individuals, sole proprietors, and independent contractors, they may use the simplified Loan Forgiveness Application Form 3508EZ if they had no employees at the time of the PPP loan application and didn’t include any employee (non-owner) salaries in their loan application.
  2. As long as loan forgiveness is applied for within 10 months of the completion of the “covered period” (now up to 24 weeks), then no payments are required to be made until the forgiveness amount is determined by the SBA.

Loan Forgiveness Payroll Costs FAQ’s

  1. If your pay periods are semi-monthly or monthly, then you are required to calculate payroll costs for partial pay periods based upon the beginning and ending dates of your covered period.
  2. Excess or accelerated payments for group health benefits or retirement benefits are not allowed for loan forgiveness. Only those benefits that would ordinarily be incurred based upon your payroll are allowed to be included.
  3. Owner Compensation:
    • The forgivable amount for owner compensation has an overall cap across all of your businesses ($20,833 per individual unless electing the original 8 week covered period).  If you have multiple businesses that received a PPP loan, you will need to choose how that overall cap is applied, and a significant portion of your owner compensation may not be eligible for forgiveness as a result.
    • The forgivable owner compensation for each business type is capped at 2.5 months of the 2019 owner compensation included in the PPP loan application, so owners cannot pay themselves at a higher rate than they did in 2019 to get more loan forgiveness.  The same limit applies for employer retirement contributions for owners (cannot exceed 2.5 months of the 2019 employer retirement contributions for the owner).
    • S-Corporation shareholders (owning greater than a 2% share) must include employer health insurance premiums paid on their behalf as cash compensation paid, along with regular salaries and wages.  The significance here is that those health insurance premiums are included in the $100,000 annual compensation cap and overall owner compensation cap along with regular salaries and wages.
    • For partnerships, while the PPP loan application allowed for the inclusion of 2.5 months of the total net earnings from self-employment for general partners (including guaranteed payments to partners, as well as pass-through profits subject to SE tax), it appears that PPP loan forgiveness will only take into account “payments to partners” based on the language here.  Payments must be made during the covered period.

Loan Forgiveness Nonpayroll Costs FAQ’s

  1. Interest on unsecured credit is not eligible for PPP loan forgiveness.  It is considered a “permissible” use of PPP funds (if the debt existed prior to 2/15/2020), but it’s not eligible for forgiveness.  Only interest on secured business mortgages on real or personal property (like auto loans) qualify.
  2. Interest on refinanced mortgages and payments for recently renewed leases are eligible for forgiveness, as long as the original mortgage/lease existed prior to 2/15/2020.

Loan Forgiveness Reduction FAQ’s

  1. Borrowers will not be penalized for a reduction in full-time equivalent (FTE) employees during the covered period if they offered to re-hire laid off employees but the employees declined, and they could not hire a similarly qualified individual for the same position.
  2. In order to qualify for this exclusion, borrowers must inform their state unemployment insurance office of the employee’s rehire rejection within 30 days of the rejection, and should maintain written records of 1) offer to rehire employees, 2) employee rehire rejections, and 3) efforts to rehire a similarly qualified individual.

As always, Riney Hancock strives to provide you the most up-to-date information so that you may make the best decisions for your business, especially in these uncertain times.  We would be happy to assist you with the PPP forgiveness application process and to address any related questions or concerns you may have.

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