On June 17, 2020, the Small Business Administration (SBA) and Treasury released two new Paycheck Protection Program (PPP) forgiveness applications.

• The first application, the Paycheck Protection Program Loan Forgiveness Application Revised June 16, 2020, is similar to the original application that was released in late May. Changes have been made to account for the program changes allowed by the Paycheck Protection Program Flexibility Act (PPPFA), enacted on June 5, 2020. In addition, the instructions for this application are now contained in a separate file.
• The EZ Application, also called the Paycheck Protection Program PPP Loan Forgiveness Application Form 3508EZ, is available to borrowers who meet one of three criteria. These criteria are available in a checklist on the separate EZ application instruction file. In summary:
  1. The Borrower is a self-employed individual, independent contractor, or sole proprietor who had no employees at the time of the PPP loan application and did not include any employee salaries in the computation of average monthly payroll in the Borrower Application Form.
  2. The Borrower did not reduce annual salary or hourly wages of any employee by more than 25%, and the Borrower did not reduce the number of full-time equivalents (FTEs) between January 1 and the end of the covered period.
  3. The Borrower did not reduce annual salary or hourly wages of any employee by more than 25%, and the Borrower was unable to operate at the same business level due to compliance and guidance from Health and Human Services, the CDC, or OSHA, related to COVID-19.
  
  

  Borrowers using the EZ Application are not required to submit documentation regarding their annual salaries/hourly wages; however, they are required to maintain it. In addition, these borrowers are required to submit or maintain information regarding their full-time equivalent employees, depending on the checklist item they choose and certifications that they make.

  It is expected that more guidance will be released that will help Borrowers determine if they are eligible to use the EZ Application.

Other key notes from the applications and related guidance include:

• An alternative payroll covered period is available for Borrowers using either the 8-week or the 24-week period. The alternative payroll covered period begins on the first day of the Borrower’s first pay period following their PPP Loan Disbursement Date.
• S-corporation owner-employees may not include employer contributions for employee health insurance since these payments are already included in their compensation.
• For a 24-week Covered Period, owner compensation is capped at 2.5-month equivalent of their compensation in 2019, up to $20,833. For an 8-week Covered Period, owner compensation is capped at 8 weeks of 2019 compensation, or $15,385, whichever is lower. S-corporation and C-corporation owners are considered owner-employees. Other owner-employee restrictions may apply.
• For employees not considered owner-employees, cash compensation is capped at $15,385 for an 8-week Covered Period, and $46,154 for a 24-week Covered Period.
• According to the Interim Final Rule, a borrower may submit a loan forgiveness application any time on or before the maturity date of the loan – including before the end of the covered period – if the borrower has used all of the loan proceeds for which the borrower is requesting forgiveness. The borrower must account for the excess salary reduction for the full 8-week or 24-week covered period if they reduce employee’s salaries or wages more than 25%. However, it is unknown how the borrower will account for FTE reductions in this scenario or how the borrower will make certifications verifying activity in the “Covered Period”. As a result, Borrowers may consider approaching this option cautiously, since guidance is expected to provide clarification.

In addition to updates covering the PPP forgiveness provisions, other general news about the PPP include:

• On June 19, the SBA and Treasury released a statement noting that in order to provide public transparency and fiduciary responsibility associated with the use of taxpayer funds, the SBA will disclose the business names, addresses, NAICS codes, zip codes, business type, demographic data, non-profit information, jobs support, and loan amount in ranges for borrowers with loans over $150,000. For those with loans under this amount, SBA will list loan totals aggregated by zip code, industry, business type, and other demographic categories.
• On July 4, 2020, President Trump signed legislation that extends the deadline for the SBA to issue Paycheck Protection Program loans to August 8, 2020. Previously, under the CARES Act, the SBA was only authorized to approve loans until June 30.

Questions still remain regarding the PPP and the forgiveness applications, and additional guidance is expected. For questions regarding your PPP loan or help regarding your forgiveness application, please contact your HBK Advisor.

On June 8, the Small Business Administration and U.S. Treasury issued a joint statement indicating that guidance and a new PPP Loan Forgiveness Application would be released “promptly.” While we wait, borrowers are confused and anxious. Some of their most frequent asked questions:

Should I choose the eight-week period or the 24-week period?
We believe this will be an individual business decision. No clarity has been forthcoming on the Paycheck Protection Program Flexibility Act (PPPFA) provision, including when or how a borrower must make this election. Similarly, because the revised PPP Loan Forgiveness Application has not been released, questions remain as to how the application and related guidance may affect a borrower’s decision to select the eight-week or 24-week period.

Will my loan be on my books at the end of the year?
It’s possible. While we expect guidance on when borrowers can apply for forgiveness, we know forgiveness will need to be approved. Borrowers may find their balance sheets reflect their PPP liability at the end of the calendar year.

Have any definitions been clarified?
Unfortunately, there has been no guidance that provides clarity on definitions such as “owner-employee,” “transportation” as an approved utility, or for other terminology that has not been defined. Further, there is no indication of which definitions might be clarified in the coming weeks.

Are borrowers previously charged with certain crimes eligible for PPP loans?
On June 12, a new Interim Final Rule was released to loosen the eligibility criteria for these borrowers. It states that borrowers are ineligible if “an owner of 20 percent or more of the equity of the applicant is incarcerated, on probation, on parole; presently subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction; or has been convicted of a felony involving fraud, bribery, embezzlement, or a false statement in a loan application or an application for federal financial assistance within the last five years or any other felony within the last year.”

While we wait for more guidance, or with any of your questions or concerns about the Paycheck Protection Program, the Paycheck Protection Program Flexibility Act, or your business’s loan, please contact your HBK Advisor.

On June 5, President Trump signed the Paycheck Protection Program Flexibility Act of 2020 (PPPFA) into law. Meaningful changes to the Paycheck Protection Program (PPP) include:

1. Extends covered period from eight to 24 weeks.
   The PPPFA defines the “covered period” as “beginning on the date of the origination of a covered loan and ending the earlier of the date that is 24 weeks after such date of origination or December 31, 2020.”  This extension gives borrowers a longer period to spend their PPP loan proceeds on allowable uses.
   
   A PPP FAQ previously defined the covered period as beginning on the date the lender makes the first disbursement of PPP funds to the borrower. We assume this commencement date still applies, despite the extension of the length of the covered period. Additionally, the “alternative payroll covered period” allowing borrowers to align the covered period with their own payroll period was established via the PPP Loan Forgiveness Application, not by legislation. We await guidance and/or changes to the PPP Loan Forgiveness Application on whether or not borrowers can continue to use this alternative period.


2. Adjust spending limitations for forgiveness.
   Previous guidance and the PPP Loan Forgiveness Application encouraged borrowers to spend 75 percent of loan proceeds on payroll costs and no more than 25 percent on non-payroll costs as part of what is required for 100 percent loan forgiveness.
   
   However, the PPPFA states that borrowers “shall use at least 60 percent of the covered loan amount for payroll costs.”  On June 8, the SBA and Treasury released at joint statement that clarified that if a borrower uses less than 60% of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60% of the loan forgiveness amount having been used for payroll costs.


3. Moves safe harbor dates to December 31, 2020.
   The CARES Act states that borrowers who had a reduction in full-time equivalent (FTE) headcount or average annual salary or hourly wages of employees between February 15 and April 26, 2020, could eliminate those reductions by June 30, 2020 and the corresponding reductions in forgiveness.
   
   PPPFA changes the June 30, 2020 date in the safe harbor calculations to December 31, 2020. It is expected that the PPP Loan Forgiveness Application will be updated to reflect this legislative change.


4. Provides additional exceptions to FTE headcount.
   The PPP FAQs, Loan Forgiveness Application, and Interim Final Rule on Loan Forgiveness indicated that borrowers would not be penalized by reductions in forgiveness for FTE reductions associated with employees that were fired for cause, voluntarily resigned, voluntarily requested and received a reduction in hours, or rejected an offer to be rehired at the same hours and rate of pay.
   
   Borrowers would need to properly document these FTE reductions and would need to report employment rejections to the applicable state unemployment office. However, if all guidelines were followed, borrowers could count the FTE reduction (assuming they were not replaced by a new hire) as an “FTE reduction exception” and forgiveness would not be negatively affected.
   
   The PPPFA adds other exceptions to the FTE count calculation. Forgiveness will not be reduced for the following situations:
   • The Borrower’s inability to rehire individuals who were employees on February 15, 2020
   • The Borrower’s inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020
   • The Borrower’s inability to return to the same level of business activity as of February 15, 2020, due to compliance with guidance issued by the HHS, CDC, or OSHA between March 31 and December 31, 2020, related to sanitation, social distancing, or other safety measures applicable to employees or customers


5. Changes loan terms.
   Most PPP loans were issued with 2-year amortization period. For loans issued after June 5, 2020, PPPFA indicates that loan amortization periods must have a minimum maturity of five years. Borrowers whose loans were issued before June 5 can negotiate with their lender to adjust their terms accordingly.
   
   In addition, most loans were issued with six-month payment deferral periods. The PPPFA states that lenders must allow the deferral of principal, interest, and fees until the date on which the amount of forgiveness is remitted to the bank. If a borrower fails to apply for forgiveness within 10 months after the last day of their covered period, they will not be required to start payments of principal, interest, and fees until 10 months after the last day of that covered period.


6. Allows for deferral of employer payroll taxes.
   Lastly, PPP borrowers found only a limited benefit from a provision in CARES Act Section 2303 allowing employers and self-employed individuals to defer payment of the employer’s share of Social Security tax (6.2 percent). However, PPP borrowers could only defer deposit and payment of the tax from March 27, 2020, through the date the lender issued a decision to forgive the PPP loan.
   
   The PPPFA removes that restriction. Borrowers may now defer through December 31, 2020, regardless of whether or not they have had a loan forgiven. Half of the deferred tax must be paid by December 31, 2020; the other half by December 31, 2021.
   

We recommend that PPP borrowers watch for additional guidance, including an updated PPP Loan Forgiveness Application. In addition, borrowers are encouraged to ensure they are maintaining thorough employment and expense related records and documentation as suggested in current guidance and the Application.

For questions about your PPP loan or related forgiveness, please contact your HBK Advisor.