Small Business Administration (SBA) Guidelines Clarify New Loan Forgiveness Rules Under the Paycheck Protection Program Flexibility Act

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By: Ashleen Sahni

The US government recently passed the Paycheck Protection Program Flexibility Act of 2020 (PPPFA), which makes it easier for businesses to get forgiveness for their Paycheck Protection Program (PPP) loans and offers additional sources of relief. Recently, the Small Business Administration (SBA) released additional guidelines to clarify the original policy.

PPPFA measures include a reduced requirement to spend loan proceeds on payroll expenses (60% of loan proceeds instead of 75%), an extended covered period when expenses are eligible for forgiveness (24 weeks instead of eight), a longer deadline to restore headcount to pre-COVID-19 levels (December 31, 2020 instead of June 20, 2020), and more.

Based on new SBA guidelines, there are additional sources of relief for businesses that seek PPP loan forgiveness.

  1. NEW FORGIVENESS APPLICATIONS

All borrowers need to use the Revised Loan Forgiveness Application to apply for PPP loan forgiveness.

Self-employed Individuals should use the Loan Forgiveness EZ Application form whether they have no employees, or they have employees but have not reduced employee pay or their number of full-time equivalent (FTE) Employees.

  1. FORGIVENESS OF OWNER COMPENSATION CAPPED AT 2.5 MONTHS OF 2019 COMPENSATION FOR A 24-WEEK COVERED PERIOD

Initially, business owner-employees or self-employed individuals were eligible for PPP loan forgiveness for up to eight weeks of owner compensation or net profit, based on 2019 rates.

Now SBA has clarified that owner-employees can qualify for loan forgiveness on owner compensation expenses for a longer time period, based on their covered period. A PPP loan’s covered period is the time during which all loan proceeds must be spent on eligible expenses to qualify for loan forgiveness.

Under these newly clarified rules, owner-employees can get PPP loan forgiveness on owner compensation expenses including up to:

    • Eight weeks of 2019 net profit or payroll (up to $15,385) for an eight week covered period
    • 5 months of 2019 net profit/payroll (up to $20,833) for a 24-week covered period

This ensures that self-employed individuals without any employees can qualify for complete  PPP loan forgiveness.

To qualify for loan forgiveness, other businesses and self-employed individuals with employees will still need to ensure that:

    • Their payroll costs are not reduced by more than 25%
    • The business has not reduced the number or hours of employees, unless the reduction is due to COVID-19 restrictions
  1. FORGIVENESS OF EMPLOYEE PAYROLL INCREASED FROM EIGHT WEEKS TO 24 WEEKS OF PAYROLL COSTS

Businesses can now enjoy an increased limit for forgiveness on employee payroll costs, up from eight weeks of payroll costs (capped at $15,385 per employee) to 24 weeks of payroll costs (limited to $46,154 per employee).

  1. FORGIVENESS OF NON-PAYROLL EXPENSES EXTENDED TO 24 WEEKS

SBA clarified that non-payroll expenses can now be forgiven for a period of 24 weeks, including interest on business mortgages, rents or lease payments, utilities, and more.

  1. CERTAIN INCLUSIONS/EXCLUSIONS FROM PAYROLL COSTS ON THE NEW APPLICATION

The following expenses are specifically excluded from payroll costs that are eligible for loan forgiveness:

    • Employer health insurance contributions made for self-employed individuals, general partners, or S corporation owner employees
    • Employer retirement contributions made for self-employed individuals or general partners

The following expense is included in payroll costs that are eligible for forgiveness:

    • Employer retirement contributions made for owner-employees capped at 2.5 months of 2019 contribution

These guidelines are preliminary. Please note that the final guidelines will be published on June 19, 2020.

Conclusion

For guidance on getting your PPP loan forgiven, please contact your Chugh CPAs, LLP professional.