PPP Loan forgiveness guidance so far
U.S. Department of Treasury and Small Business Administration (SBA) released additional interim rules to the Paycheck Protection program (PPP) loan forgiveness on May 22, 2020. As the situation is fluid, we are continuously monitoring the situation and are trying our best to keep you updated. Here are the latest guidelines:
Forgiveness Application & Process:
SBA and US Treasure have released the application form that you can download from the SBA website. Once completed, the lender has 60 days from receipt of a complete application to issue a decision to SBA. The application consists of 11 pages and part A worksheet of the application can be confusing. We recommend that you have your CPA complete the application form due to complexity.
Safe Harbor Rule:
According to the SBA, if your company have received a loan less than $2 million then it is viewed as meeting the “good faith” standard under the PPP.
Covered vs Alternative Pay Period:
In general, payroll costs paid or incurred during the eight consecutive week (56 days) covered period are eligible for forgiveness. Borrowers may seek forgiveness for payroll costs for the eight weeks beginning on either:
- the date of disbursement of the borrower’s PPP loan proceeds from the Lender (i.e., the start of the covered period); or
- the first day of the first payroll cycle in the covered period (the “alternative payroll covered period”
Example from the Treasury site:
Example: A borrower has a bi-weekly payroll schedule (every other week). The borrower’s eight-week covered period begins on June 1 and ends on July 26. The first day of the borrower’s first payroll cycle that starts in the covered period is June 7. The borrower may elect an alternative payroll covered period for payroll cost purposes that starts on June 7 and ends 55 days later (for a total of 56 days) on August 1. Payroll costs paid during this alternative payroll covered period are eligible for forgiveness. In addition, payroll costs incurred during this alternative payroll covered period are eligible for forgiveness as long as they are paid on or before the first regular payroll date occurring after August 1. Payroll costs that were both paid and incurred during the covered period (or alternative payroll covered period) may only be counted once.
FTE Definition:
- FTE= Employee work at least 40 hours per week = Assign 1 for Employees
- If any employee works less than 40 hours, then = Assign .5 for the employees.
- For payroll cost comparison, you can either choose from
- 2/15/19 to 6/30/19 or
- 1/1/20 to 2/29/20.
Upcoming Changes:
Also, On Thursday, May 28th, the House passed a bill changing the requirements for forgiveness of the PPP Loan. Here are the highlights:
- The 8 week requirement has been pushed out to 24 weeks.
- The 75/25 split between payroll cost versus rent and utilities has been changed to 60/40 split.
- The 24 month repayment period for amounts termed out as a loan has been extended to 60 months.
- Push back the rehire deadline to December 31, 2020.
- Allow defer payroll taxes even if you have received the PPP loan.
We are expecting further guidance from SBA about the PPP loan in upcoming weeks. It is very important to stay in touch with your financial advisor and CPAs who can help you navigate through the rules and changes.
Source: https://home.treasury.gov/system/files/136/PPP-IFR-Loan-Forgiveness.pdf