SBA Rolls Out Updated PPP Loan Forgiveness Application

June 26, 2020 | Category: BPE Newsletter, COVID-19

On June 16, 2020, the SBA rolled out a new and updated loan forgiveness application for the immensely popular PPP loan. As you may recall, under the initial framework for the PPP loan, there were concerns for many small businesses and the potential eligibility for loan forgiveness because many businesses were still closed or substantially closed after the 8 week covered period ran.

Real estate agents are slowly getting back to business but things like open houses and walk in public showings are generally still not allowed. Dental professionals were substantially closed until early May. Even when they were allowed to resume operations, most of the services were limited to emergency services only. Routine check ups and cleanings didn’t begin in earnest industry wide generally until June. Restaurants while open to limited take out service weren’t allowed to have minimal seating capacity until June and are still significantly restricted as to the number of seated patrons allowed. It was clear that the borrowers that the CARES Act program was designed to help – would not help them because the shutdowns were longer than anticipated.

Subsequently, the Paycheck Protection Program Flexibility Act (“PPPFA”) was passed and President Trump signed into law on June 5, 2020. This program addressed many of the concerns about forgiveness that had small business worried. Chief among the concerns was the loan forgiveness tied to an 8-week period which was increased to a 24-week period and the requirement to use 75% of the proceeds for payroll costs which was subsequently reduced to 60%.

With these changes, the SBA introduced an updated application and instructions for completion related to the forgiveness of the borrowed sums. The SBA in introducing the new forgiveness applications provided two forgiveness applications. One is the 3508EZ form and the other is the standard form. In order to be able to use the 3508EZ form the borrower will have to make one of 3 certifications. (A) the borrower is self-employed and had zero employees; or (B) the borrower did not reduce any employees compensation by more than 25% from January 1 to the end of covered period and did not reduce staff or average hours, excepting from the totals the inability to rehire qualified employees or employees who refused to return to work, or (C) the borrower did not reduce any employees compensation by more than 25% from January 1 to the end of covered period and the borrower was unable to operate at pre-Covid levels because of compliance with OHSA, CDC, Fed. Dept of Health and social distancing requirements. One thing to take from the use of the application is compliance with federal requirements.

Many businesses are still operating at levels much lower than pre-Covid levels because of the various state and local guidelines. However, those reductions are being promulgated by state and local jurisdictions and the allowance for the 3508EZ form is predicated by compliance with the federal standards. There are discrepancies between the state and federal guidance that may preclude some from using the 3508EZ form. Make sure that when you complete your application, that you select the correct form as that should accelerate the forgiveness determination.

With the new instructions, make sure to calculate the payroll compensation correctly. For owners, as defined in the instructions, only calculate up to 2.5 months worth of compensation pro-rated against $100,000 of annualized compensation if using the 24-week covered period. If using the 8-week covered period, then capped at 8-weeks of compensation pro-rated against $100,000. For employee-owners health care insurance is not to be counted because that is already factored into compensation.

Also make sure to pay attention to the retirement contribution restrictions for employee-owners as well. These retirement contributions for employee-owners are also capped at 2.5 months worth of 2019 contributions.

For borrowers that obtained a PPP loan after June 5, 2020, the covered period will be 24-weeks. For borrowers that obtained a PPP loan, they will have the choice of selecting either an 8-week covered period or a 24-week covered period. Borrowers will want to work with their accountants and attorneys to determine which covered period is likely to be better for them. One thing to remember, these laws and regulations are constantly changing. There are benefits to both. Make sure that you strategically make your determination.

Finally, a new round of relief may be on the way. A bi-partisan bill, the Prioritized Paycheck Protection Program (“P4”) is currently making its way through Congress. Under this bill, if passed, certain small businesses may be able to obtain a second PPP loan. Under the current language of the bill, the program would be limited to employers with less than 100 employees and would require borrowers to certify that they have had 50% loss in revenue related to COVID-19. There are already several small business organizations addressing the loss component because many businesses have seen significant losses, and those with 20%, 30% or 40% losses would be locked out of a second round of PPP loans.

This new legislation is welcome relief for many struggling small businesses. Much will need to be done to help the struggling small businesses. As PPP went through many changes over the last 3 months, P4 will also likely see many revisions before being passed, if it is ultimately passed as the bi-partisan suggests.

The information contained in this article is for informational purposes only and not construed as legal advice. If you have questions, you should seek competent legal representation to assist you.

 

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