PPP Update – SBA Issues Updated PPP Loan Forgiveness Guidance and Applications

The U.S. Small Business Administration (SBA) has issued updated guidance regarding loan forgiveness under the Paycheck Protection Program (PPP).  When the U.S. Congress passed the Paycheck Protection Program Flexibility Act of 2020 (PPPFA), they enacted material changes that are favorable for many borrowers of PPP loans due to the increased flexibility now provided for loan terms and potential forgiveness.  The latest guidance provides further clarification for how borrowers shall apply for loan forgiveness through their lenders.
The original Loan Forgiveness Application has been updated to reflect the changes included in the PPPFA.  The SBA has also published updated instructions for completing the loan forgiveness application.   The changes in the updated form that were codified in the PPPFA include:

Covered Period – The covered period during that borrowers may choose to incur eligible costs has been increased from 8 to 24 weeks.  Borrowers that received loans before June 5 can choose between using the original 8-week covered period or the new 24-week covered period.

Forgiveness Limitations – The PPPFA changes the payroll costs requirement such that at least 60% of the PPP loan must now be used for payroll costs (versus prior guidance of 75%) while the remaining loan proceeds must be used for any payment of interest on any covered mortgage obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation), any payment on any covered rent obligation, or any covered utility payment.

Workforce Restoration – The PPPFA provides borrowers additional time during which to restore their workforce levels and wages to pre-pandemic levels in order maximize loan forgiveness.  This must now be done within 24 weeks from the time a borrower received their loan and no later than December 31, 2020.

Forgiveness Exemptions – The PPPFA adds additional exemptions if the borrower is unable to hire qualified employees or unable to restore business operations to February 15, 2020 levels due to compliance with COVID-19 restrictions.

Loan Terms – The PPPFA provides that new PPP loans shall have a minimum maturity of 5 years.  Additionally, the Act changes the original terms for PPP loan payment deferment from 6 months to 10 months.

The SBA has also published a streamlined Loan Forgiveness Application Form EZ that borrowers may use under certain circumstances.  Borrowers seeking forgiveness using this application must meet the following criteria (expanded requirements are noted on the Loan Forgiveness Application Form EZ Instructions):

The Borrower is a self-employed individual, independent contractor, or sole proprietor who had no employees at the time of the PPP loan application; OR

The Borrower did not reduce annual salary or hourly wages of any employee by more than 25 percent and the Borrower did not reduce the number of employees or the average paid hours of employees; OR

The Borrower did not reduce annual salary or hourly wages of any employee by more than 25 percent and the Borrower was unable to operate during the covered period at the same level of business activity as before February 15, 2020.

Borrowers will recall that the PPP allows loan forgiveness for payroll costs for up to $100,000 annualized per employee, or $15,385 per individual over the eight-week period.  The U.S. Treasury also issued a new Interim Final Rule that establishes a 24-week maximum for full loan forgiveness at $46,154 per individual (for borrowers that elect 24 weeks rather than 8 weeks).
RS&F is working with many clients in regards to determining their potential loan forgiveness under the PPP.  The new guidance provides enhanced flexibility that will support greater levels of forgiveness for more borrowers.  We strongly encourage clients to continue evaluating the disposition of their unspent PPP loan proceeds in consultation with their advisors and finance team.

As a reminder, RS&F is able to assist clients to determine loan forgiveness and address other provisions of the CARES Act.  Please contact your RS&F Client Advisor for assistance with PPP loan forgiveness or other program questions.