Paycheck Protection Program (PPP) – Loan Forgiveness

On August 4, 2020 the Small Business Administration (“SBA”), in consultation with the Department of Treasury, issued 23 frequently asked questions (“FAQs”) on PPP Loan Forgiveness. These FAQs supplement the previously issued PPP Interim Final Rules. As in the previous guidance, most of them are borrower friendly.

A few highlights from the FAQs initial analysis:

The FAQs provide the much sought after definition of “owner-employee” for the purpose of PPP Loan forgiveness computation.
Computation of loan forgiveness for owners compensation – The FAQs provide a breakdown by business type and whether the borrower is using an eight week or twenty-four week covered period. It answers several questions regarding compensation of C-corporation and S-Corporation owner-employees, general partners, LLC owners, self-employed individuals, including sole proprietors and independent contractors. An important point to note in FAQ #8 is the treatment of the “cap” across various businesses owned. It also sheds light on the debated treatment of “health insurance” and “retirement contribution” for owner compensation.
The FAQs address other payroll cost questions that include partial pay periods, group health benefits, retirement expenses, and expenses incurred or paid outside the eight week or twenty-four week covered periods.
It seeks to define the “payment for a service for the distribution of transportation” that was included in “covered utility payments” eligible for forgiveness. A service for the distribution of transportation refers to “transportation utility fees” assessed by state and local governments.
The FAQs also address other nonpayroll costs that were incurred or paid outside the covered periods. Additionally, it was made clear that the “Alternative Payroll Covered Period” for payroll costs does not apply to nonpayroll costs.
Interest expense eligible for forgiveness is limited to secured debt on real or personal property and interest expense on unsecured debt incurred before February 15, 2020 is an allowable use of PPP loan proceeds, but this expense is not eligible for PPP loan forgiveness. It also addresses loan forgiveness with respect to renewed leases and refinanced mortgage loans.
The FAQs indicate how loan forgiveness reductions should be calculated by borrowers when there was a reduction in employee salary or hourly wage. The FAQs include three examples of the salary/hourly wage reduction calculation.
The FAQs outline when payments on the loan (if any) would commence, how and when interest would accrue, as well as confirming the time frame for submitting the loan forgiveness application.

To review all the FAQs and examples, click here.

With the issuance of the FAQs is it time to apply for PPP loan forgiveness? Not yet. As stated in last week’s email blast, patience is needed. While the FAQs addressed a number of outstanding questions, there are still some gray areas, including a very important question regarding how the FTE reduction will be calculated if applying for forgiveness before the end of the covered period. For this reason, we advise you wait to apply for loan forgiveness and stay tuned to HM&M, your trusted advisor, to bring you more information as it becomes available.

For more information check out HM&M’s COVID-19 Resources page.

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