On Friday night, May 15th, the Small Business Administration (SBA) finally provided some actionable guidance on PPP forgiveness. The guidance is in the form of the actual forgiveness application. Forgiveness for loans under $2M will be handled by your lender and those over $2M by the SBA. The application seems to answer many of the questions borrowers had, although additional updates will likely be issued before it goes live. The form can be found at:
https://home.treasury.gov/policy-issues/cares/assistance-for-small-businesses
Some key points from the guidance are as follows:
- The covered period is defined as the eight weeks (56-day) following your PPP Loan Disbursement Date. There is no change here, except an “Alternative Payroll Covered Period” may be elected so the covered period beings on the first day of their first pay period following their PPP Loan Disbursement Date.
- Eligible payroll costs include both those that are incurred and those that are paid during the covered period, although there is likely to be more guidance here.
- Retirement plan contributions made during the covered period are included in payroll costs. This would include 401(k), profit-sharing, and ESOP contributions. In particular with ESOP contributions, but not limited to, there may be an opportunity to fill a gap between funds spent and the PPP loan amount.
- Average full-time equivalency (FTE) is defined, with 2 options:
- Measured by using hours per week divided by 40, rounded to the nearest tenth, with the maximum each employee can get being set at 1.0.
- A simplified method that assigns a 1.0 for employees who work 40 hours or more per week and .5 for employees who work fewer than 40 hours.
- Employees who were fired for cause quit or refuse to come back to work will not negatively the FTE loan forgiveness calculations.
- A safe harbor exists for those who reduced their labor force. If the safe harbor is met, there is no forgiveness reduction related to headcount. To qualify for this safe harbor, two conditions must be met.
- (1) the borrower reduced its FTE employee levels in the period beginning February 15, 2020, and ending April 26, 2020.
- (2) the borrower then restored its FTE employee levels by not later than June 30, 2020, to its FTE employee levels in the borrower’s pay period that included February 15, 2020.
- Eligible nonpayroll costs are defined:
- Covered mortgage obligations: payments of interest (not including any prepayment or payment of principal) on any business mortgage obligation on real or personal property incurred before February 15, 2020
- Covered rent obligations: business rent or lease payments pursuant to lease agreements for real or personal property in force before February 15, 2020
- Covered utility payments: business payments for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020
“Forgiveness Friday” Webinar Series
RP&B has teamed up with AmbroseAdvisors, AmPac Business Capital, and Paychex for live webinars each Friday. Part II will be this Friday, May 22 at 8:00 a.m. PDT with new information and follow-up answers to last week’s webinar. W hope you join us to discuss loan forgiveness through the Paycheck Protection Program. You are welcome to share this with others
Free live webinar Friday, May 22 at 8:00 am PDT.
Keep your eyes open for a future email with a registration link.
There are certain to be more updates and changes. You can always click here for more COVID-19 resources relating to the above information https://rpbcpa.com/covid-19-support/ as we will do our best to keep it updated with information we think is useful.