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Illinois regulator releases recordings of PPP Loan Forgiveness Application webinars
On June 23, the Illinois Department of Financial and Professional Regulation announced that recordings of webinars offered to lenders and businesses on June 18 concerning the federal Paycheck Protection Program Loan Forgiveness Application are available online.
SBA issues PPP “EZ” loan forgiveness application
On June 16, the Small Business Administration (SBA), in consultation with the U.S. Treasury Department, released the Paycheck Protection Program (PPP) EZ Loan Forgiveness Application. According to the PPP Loan Forgiveness Application Form 3508EZ instructions, a borrower may use the streamlined form if it meets one of three criteria: (i) the borrower is self-employed, an independent contractor, or sole proprietor with no employees at the time of application; (ii) the borrower did not reduce salary or wages of any employee by more than 25 percent during the covered period and did not reduce the number of employees or the average paid hours of employees; or (iii) did not reduce salary or wages of any employee by more than 25 percent during the covered period and was unable to operate during the covered period at the same business activity level as prior to February 15, 2020, due to compliance with certain government requirements. Recently, a group of bipartisan senators urged the SBA to streamline the loan forgiveness form arguing that the “11-page forgiveness application” was “beyond the program’s intent” and that it was unnecessarily onerous (covered by InfoBytes here).
Additionally, the SBA released additional revisions to the interim final rule implementing Section 1102 of the CARES Act, which establishes the PPP, to reflect changes made by the PPP Flexibility Act of 2020. InfoBytes coverage regarding the PPP Flexibility Act changes can be found here.
SBA codifies PPP flexibility guidance
Recently, the Small Business Administration (SBA) released an interim final rule (IFR) to incorporate key revisions made to the Paycheck Protection Program (PPP) by the Paycheck Protection Program Flexibility Act of 2020 (Flexibility Act). The Flexibility Act, as previously covered by InfoBytes, took effect June 5. Many of the Flexibility Act’s provisions, such as those related to loan forgiveness and deferral periods for PPP loans, are retroactive to March 27, 2020. The provision related to the maturity date of PPP loans took effect June 5, 2020, and the remaining provisions will take effect upon publication in the Federal Register.
The IFR codifies several changes made to the PPP, including the following:
- Reiterates that the last day a lender can obtain an SBA loan number for a PPP loan is June 30, 2020.
- Amends the end date of the “covered period” for a PPP loan from June 30, 2020 to December 31, 2020.
- Provides a minimum maturity of five years for all PPP loans made on or after the enactment of the Flexibility Act, and provides an option for borrowers and lenders to mutually agree to extend maturity from two years to five years for loans made before June 5.
- Clarifies that if a borrower submits its loan forgiveness application within 10 months of the end of the loan forgiveness period, the borrower will not be required to make any payments on the loan before the date SBA remits the forgiven amount to the lender or notifies the lender that loan forgiveness is not allowed.
- Extends the deferral period on PPP loans by extending the loan forgiveness period from eight weeks to 24 weeks beginning on the date the loan is disbursed. However, borrowers may opt to keep the forgiveness period at eight weeks for loans made prior to June 5, 2020.
- Sets the minimum amount that businesses must spend on payroll at 60 percent in order to receive forgiveness, but provides that—consistent with a safe harbor in the Flexibility Act—the SBA, in consultation with Treasury, will “interpret[] this requirement as a proportional limit on nonpayroll costs as a share of the borrower’s loan forgiveness amount, rather than as a threshold for receiving any loan forgiveness.” Revisions to the SBA’s IFRs on loan forgiveness and loan review procedures addressing these amendments are forthcoming.
The SBA also released an updated borrower application form, as well as a revised lender application.
Senators say PPP loan forgiveness application is unnecessarily burdensome
On June 12, a bipartisan group of senators wrote to the U.S. Treasury Department and the Small Business Administration (SBA) urging revisions to the Paycheck Protection Program’s (PPP) loan forgiveness application. Specifically, the letter requests that the application be “no longer than one page for any loan under $250,000.” The senators note that the CARES Act only requires the forgiveness application to include three items: (i) documentation supporting payroll numbers and pay rates; (ii) documentation supporting mortgage, lease, and utility payments; and (iii) certification that the information is true and correct. While the SBA has the ability to require more documentation, the senators argue that the “11-page forgiveness application” is “beyond the program’s intent” and that it is not only difficult to complete, but it may require businesses to seek costly professional tax advice. The senators acknowledge that for loans above $2 million, intense scrutiny is “an appropriate oversight of taxpayer resources,” but for loans “worth a mere fraction of that,” the lengthy application is a “needless complication to our nation’s economic recovery.”
Details on the PPP loan forgiveness process can be found here.
SBA, Treasury address PPP amendments, rules and guidance forthcoming
On June 8, Small Business Administration (SBA) Administrator Jovita Carranza and U.S. Treasury Secretary Steven T. Mnuchin issued a joint statement on the enactment of the Paycheck Protection Program Flexibility Act (Flexibility Act). As previously covered by InfoBytes, the Flexibility Act—which took effect June 5—amends provisions of the CARES Act and the Small Business Act to provide Paycheck Protection Program (PPP) borrowers greater flexibility and more time to make qualifying expenditures for loan forgiveness. Among other things, the Flexibility Act (i) extends the maturity period for PPP loans with remaining balances after applying for forgiveness to five years; (ii) extends the covered period from eight weeks to the earlier of 24 weeks after origination or December 31, 2020; (iii) sets the minimum amount that businesses must spend on payroll to receive forgiveness at 60 percent (rather than 75 percent); (iv) allows borrowers to defer principal and interest payments on PPP loans until the SBA remits the amount of determined forgiveness to the lender, instead of the original six-month deferral period; and (v) confirms that June 30, 2020 will be the last date on which a PPP loan application can be approved.
SBA, in consultation with Treasury, will promptly issue rules and guidance, along with a modified borrower application form and loan forgiveness application to implement the Flexibility Act’s amendments to the PPP. The forthcoming rules and guidance will also establish various safe harbors from reductions in loan forgiveness based on reductions in full-time equivalent employees, as well as for businesses that document their inability to rehire workers employed as of February 15, and their inability to find similarly qualified workers by the end of the year.
Paycheck Protection Program Flexibility Act of 2020 provides more options for borrowers
On June 5, President Trump signed the Paycheck Protection Program Flexibility Act of 2020 (H.R. 7010), which amends provisions of the CARES Act (covered by a Buckley Special Alert) and the Small Business Act to provide Paycheck Protection Program (PPP) borrowers greater flexibility and more time to make qualifying expenditures for loan forgiveness. Among other things, the Act (i) extends the maturity period for PPP loans with remaining balances after applying for forgiveness to five years; (ii) extends the covered period to the earlier of 24 weeks after origination or December 31, 2020, rather than the current eight weeks; (ii) maintains forgiveness amounts for businesses that document their inability to rehire workers employed as of February 15, and their inability to find similarly qualified workers by the end of the year; (iv) sets the minimum amount that businesses must spend on payroll at 60 percent in order to receive forgiveness; (v) allows borrowers to defer principal and interest payments on PPP loans until the Small Business Administration remits the amount of determined forgiveness to the lender, instead of the current six-month deferral period (borrowers that do not apply for forgiveness will be given at least 10 months after the program expires to begin making payments); and (vi) allows businesses with forgiven loans to defer payroll taxes. The Act takes effect immediately.
SBA clarifies PPP loan forgiveness process, lender and borrower responsibilities
Recently, the Small Business Administration released two interim final rules (IFR) to provide guidance on the Paycheck Protection Program (PPP) loan forgiveness process, as well as directions on lender and borrower responsibilities. Both IFRs are effective immediately, and comments will be received for 30 days following publication in the Federal Register.
The loan forgiveness IFR outlines PPP loan forgiveness requirements for borrowers and lenders. Among other things, lenders must confirm that they received the borrower certifications in the loan forgiveness application form (covered by InfoBytes here) and verify the borrower’s calculations. The IFR also clarifies several questions, including those related to employee status, payroll calculations, and nonpayroll expenses eligible for forgiveness.
The lender and borrower responsibilities IFR provides additional guidance on the SBA PPP loan review, the loan forgiveness process for lenders, and lender eligibility for processing fees. While the IFR recommends that lenders work with borrowers to correct identified “errors in the borrower’s calculation or material lack of substantiation in the borrower’s supporting documents,” it does not require lenders to “independently verify the borrower’s reported information if the borrower submits documentation supporting its request for loan forgiveness and attests that it accurately verified the payments for eligible costs.” Lenders must report their decisions on forgiveness applications to the SBA and request payment from the SBA for borrowers that are eligible for forgiveness no later than 60 days after receiving a complete application. The SBA also has the authority to review any PPP loan, although it will evaluate a loan based on the “rules and guidance available at the time of the borrower’s PPP loan application.” In addition, the IFR notes that lenders may lose fees for any loans deemed to be ineligible, and that the SBA may claw back already issued-fees if it determines the lender has failed to fulfill its obligations under the PPP. According to the IFR, lenders will receive payment from the SBA on eligible loans, plus any accrued interest through the date of payment, no later than 90 days after a lender reports its decision to SBA.
SBA, Treasury release PPP loan forgiveness application
On May 15, the Small Business Administration (SBA) in consultation with the Treasury Department announced the release of the Paycheck Protection Program (PPP) Loan Forgiveness Application that borrowers must complete in order to have their loans forgiven at the conclusion of the eight-week covered period, which begins upon loan disbursement. The application provides specific instructions, including several measures designed to reduce compliance burdens and simplify the process. These include: (i) “[o]ptions for borrowers to calculate payroll costs using an ‘alternative payroll covered period’ that aligns with borrowers’ regular payroll cycles”; (ii) the flexibility to count any eligible payroll and non-payroll expenses paid or incurred during the eight-week period after the disbursement of a borrower’s PPP loan; (iii) clear instructions on how to perform calculations to confirm eligibility for loan forgiveness as required by the CARES Act; (iv) a safe harbor from forgiveness reduction for borrowers that were able to rehire employees by June 30; and (v) the addition of a new exemption from forgiveness reduction “for borrowers who have made a good-faith, written offer to rehire workers that was declined[.]” The SBA announced it “will also soon issue regulations and guidance to further assist borrowers as they complete their applications, and to provide lenders with guidance on their responsibilities.”
SBA, Treasury won’t audit PPP loans beneath $2 million
On May 13, the Small Business Administration (SBA) in consultation with the Treasury Department updated the Paycheck Protection Program (PPP) Frequently Asked Questions (FAQs) to provide additional borrower guidance. Borrowers that submit PPP applications must certify, in good faith, that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” FAQ #46 establishes a safe harbor that “[a]ny borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith.” According to SBA, this safe harbor is appropriate because borrowers with loans of less than $2 million are generally less likely to have access to other forms of liquidity than borrowers who are able to obtain larger loans. Also, the safe harbor will provide more certainty to PPP borrowers with more limited resources, and it will allow SBA to use its resources efficiently to prioritize reviews of larger loans, where compliance audits may yield higher returns.
SBA’s guidance noted, however, that borrowers with loans greater than the $2 million threshold “may still have an adequate basis for making the required good-faith certification, based on their individual circumstances in light of the language of the certification and SBA guidance.” Those loans will be subject to review by the SBA, and if the SBA determines a borrower lacks an adequate basis for certification, the borrower will not be eligible for loan forgiveness and must pay the outstanding balance. If a borrower repays a loan after receiving notification from the SBA, the SBA states that it will not pursue administrative enforcement or make referrals to other agencies based on its determination concerning the certification of necessity.
Additionally, in FAQ #47, the SBA extended until May 18 the PPP safe harbor repayment deadline for borrowers who received PPP loans but had access to other sources of capital. Borrowers who applied for a PPP loan and repay the loan in full by May 18 will be deemed by the SBA to have made the required certification regarding necessity of the loan request in good faith. The extension is intended to provide borrowers an opportunity to consider FAQ #46. The SBA’s interim final rule providing the safe harbor (covered by InfoBytes here) will be revised to reflect the extension.
SBA, Treasury extend PPP certification safe harbor
During the week ending May 8, the Small Business Administration (SBA) in consultation with the Treasury Department (Treasury) updated the Paycheck Protection Program (PPP) Frequently Asked Questions (FAQs) to, among other things, provide guidance on the PPP safe harbor and counting a small business’s employees for the 500 or fewer employee requirement. As previously covered by InfoBytes, the SBA will deem that the borrower certification on a loan application was made in good faith if a recipient of a PPP loan prior to April 24 determines it may have other forms of liquidity and repays the loan by the safe harbor deadline of May 7. SBA extended the safe harbor for repayment from May 7 to May 14. The FAQs also provide that a small business must include foreign affiliate employees when calculating how many people it employs for purposes of determining if the business meets the PPP eligibility requirement of 500 or fewer employees. Additionally, the updated FAQs also explain that a PPP loan recipient that makes a good faith attempt, in writing, to rehire a furloughed employee, will not be penalized by a reduction in loan forgiveness it receives if that employee rejects the offer. New FAQs also cover how to calculate maximum PPP loan amounts for seasonal employers and whether nonprofit hospitals qualify for PPP loans.