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:
- 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.
- 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.
- 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.