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SBA Issues Revisions to PPP Loan Forgiveness Rule on June 22, 2020

No sooner did we publish our last post indicating we were awaiting revisions to SBA’s Loan Forgiveness Rule for Paycheck Protection Program (“PPP”) loans, than the Administration issued the revisions to the May 22, 2020 Loan Forgiveness Rule (the “Rule”). 

So, now what? The next logical question is, “Well, when can I apply for forgiveness?”  The Rule notes that a borrower may submit a loan forgiveness application any time on or before the maturity date of the loan, including before the 8- or 24-week covered period, if you have used all of your PPP loan proceeds.  It also cautions that, if individual salaries or wages are reduced for individual employees by more than 25% of pre-pandemic levels, you must account for that reduction throughout the entire 8- or 24-week period.  In addition, you would be precluded from using the new EZ Form to apply for forgiveness.

The SBA has not yet determined how these loan forgiveness applications will be submitted, other than to say the applications will have to be submitted electronically.  Our own online application will be available in early July, complete with forgiveness calculators to help you through the process.  We encourage you to wait until you have received your personalized email invitation to our secure online portal before attempting to independently navigate the SBA applications.

Caps on Loan Forgiveness Amounts?

The most common question we get is whether the option to elect a 24-week covered period increases the caps on owner-employees.  The short answer is no, as the amount of loan forgiveness requested for owner-employees and self-employed individuals’ payroll compensation remains capped at 2.5 months’ worth (2.5/12) of 2019 compensation or $20,833 per individual; however, the new Rule provided guidance for each type of entity as follows:

  1. C-corporation owner-employees are capped by the amount of their 2019 employee cash compensation and employer retirement and health insurance contributions made on their behalf.
  2. S-corporation owner-employees are capped by the amount of their 2019 employee cash compensation and employer retirement contributions made on their behalf, but employer health insurance contributions made on their behalf cannot be separately added because those payments are already included in their employee cash compensation.
  3. Schedule C or F filers are capped by the amount of their owner compensation replacement, calculated based on 2019 net profit.
  4. General partners are capped by the amount of their 2019 net earnings from self-employment (reduced by claimed section 179 expense deduction, unreimbursed partnership expenses, and depletion from oil and gas properties) multiplied by 0.9235.

For self-employed individuals, including Schedule C or F filers and general partners, retirement and health insurance contributions are included in their net self-employment income and therefore cannot be separately added to their payroll calculation.

Other than that, the Rule doesn’t appear to change much about the forgiveness requirements we’ve previously discussed, BUT, as new guidance is issued frequently, we encourage you to visit our PPP page on our website for answers to the most common questions.  On our page we also include links to other helpful tools, including the US Chamber of Commerce guide on forgiveness.  Stay well!