P3 forgiveness guidelines released as Congress reflects on changes
The U.S. Treasury and Small Business Administration (SBA) on Friday evening released new paycheck protection program (PPP) guidelines that provided clarification on several loan forgiveness issues, but did not not addressed the two parts of the PPP that have arguably aroused the most concern among the millions of small businesses and other entities that have received funding.
Two new provisional final rules published on Friday evening build on the loan forgiveness request and the instructions issued on May 15, but they do not change either the eight-week period in which PPP funds must be spent to be eligible for the rebate or the rule requiring PPP borrowers to spend at least 75% of the funds in salary costs to qualify for full loan forgiveness.
These two questions are at the center of several bills considered in Congress.
The Senate could vote as early as this week on an invoice this would double the loan forgiveness period to 16 weeks. The house is supposed to vote this week on stand-alone legislation that would extend the loan cancellation period up to 24 weeks and also eliminate the rule requiring PPP borrowers to spend at least 75% of funds on staff costs in order to qualify for full loan cancellation. A separate Senate bill would also extend the loan forgiveness period to 24 weeks and eliminate the 75% rule.
Critics of the eight-week loan forgiveness period argue that it is not flexible enough for businesses that have dealt with, and in many cases continue to deal with, state-mandated stay-at-home orders and locally who have closed many types of businesses. or operating at significantly reduced capacity. Critics of the 75% rule argue that it does not do enough to accommodate businesses whose employees have been unable to work due to government-imposed business closures.
Provisions to be noted in 2 new provisional rules
While the two bills proposed by Congress would impact loan cancellation, the two new interim final rules released on Friday are the most recent authoritative guidelines. One is on loan cancellation requirements (read the pdf) and the other describes the PPP loan review procedures and related responsibilities of the borrower and lender (read the pdf).
The 26 pages of loan forgiveness requirements guidelines, a significant portion of which reflects the instructions in the PPP loan forgiveness application released on May 15, answer more than a dozen questions related to the loan forgiveness process. whose salary and non-salary costs are eligible for the rebate. , and how various scenarios affect the amount of loan forgiveness for which a borrower is eligible. Highlights include:
- Implemented an alternate method to determine the start of the eight week period for companies with bi-weekly or more frequent pay cycles. These borrowers can choose another payroll period, which is the eight week period starting on the first day of the payroll period after receiving the funds. Previously, the only start date allowed was the day the lender disbursed the funds to the borrower – which remains the requirement for all businesses with less frequent pay periods than every two weeks. The AICPA had issued a recommendation calling for increased flexibility for the start of the eight-week covered period to align with the borrower’s pay period in order to improve the efficiency of the remission request process.
- Clarified that bonuses and risk premiums are eligible for loan cancellation, as are salaries, wages and commission payments to employees on leave. Payments cannot exceed the amount prorated to an annual salary of $ 100,000.
- Establishment of ceilings on the amount of loan remission available for the own remuneration of employee-owners and self-employed workers. Specifically, the amount requested cannot be greater than the lesser of 8/52 of 2019 compensation (i.e. approximately 15.38% of 2019 compensation) or $ 15,385 per person in total in all companies. For the self-employed, including Annex C filers and general partners, there is no additional discount for pension or health insurance contributions.
- Clarified when non-salary costs must be incurred or paid to qualify for loan forgiveness. Specifically, the charges must be paid within the eight week period or incurred during the period and paid no later than the next regular bill date, even if that date is after the eight weeks. The guidelines also state that prepayments on mortgage interest are not eligible for loan forgiveness.
- Reiteration of the the directions previously announced set the rules by which employers can exclude employees who refuse to be rehired from loan cancellation calculations. The new guidelines reiterate that in calculating any reduction in full-time equivalent employees, employers can exclude all employees who decline a good faith offer to return to the same pay and hours as before their termination or leave. The guidelines released Friday include a requirement for borrowers to notify the state unemployment office of an employee’s rejected offer within 30 days of that rejection.
- Definition of the full-time equivalent to 40 hours, and two methods of calculating FTEs for non-full-time employees.
- Statement that borrowers can reinstate the discount if they rehire employees before June 30 and reverse wage and salary cuts for FTE employees by June 30. The guidelines state that loan forgiveness totals would not be reduced for hours and pay cuts for the same employee.
The 19 pages provisional rule on PPP Review Procedures and Related Borrowing and Lender Responsibilities covers the details of the procedure. In particular the rule:
- Establishes that the SBA can review any PPP loan, regardless of size, to determine if the borrower is eligible for PPP loans under the CARES Act, if the borrower correctly calculated the loan amount and used the funds for eligible costs, and whether the borrower qualifies for the amount of loan forgiveness he is requesting.
- States that borrowers can appeal decisions of the SBA within 30 days of receiving them. The guidelines also state that an appeal process will be established, with details to be included in a subsequent interim final rule.
- Requires lenders to decide on loan cancellation within 60 days of receipt of borrower’s complete application. The SBA then has 90 days to review the loan forgiveness request.
- Clarifies that lenders and the SBA can ask questions of borrowers
- Confirms that lenders will not receive their fees for PPP loans that the SBA deems ineligible. This includes a one-year clawback provision on bank charges for these loans.
PPP in brief
Congress created the PPP under the $ 2 trillion CARES Aid, Relief and Economic Security (CARES) Act, PL 116-136. The legislation allowed the Treasury to use the SBA’s Small Business Loan Program 7 (a) to fund loans of up to $ 10 million per borrower that qualifying businesses could spend to cover payroll, mortgage interest, mortgage interest, debt. rent and utilities. PPP borrowers are eligible for loan cancellation if the proceeds are used to pay certain eligible costs. However, the amount of the loan forgiveness will be reduced if less than 75% of the funds are spent on salaries in an eight week loan forgiveness period.
Congress established the PPP to provide relief to small businesses during the coronavirus pandemic under the CARES Act. PPP funds are available for small businesses that were in operation on February 15 with 500 or fewer employees, including nonprofits, veterans organizations, tribal businesses, freelancers, sole proprietorships and independent contractors. Businesses with more than 500 employees in certain industries can also apply for loans.
the AICPA Paycheck Protection Program Resource Page houses resources and tools produced by the AICPA to help cope with the economic impact of the coronavirus.
For more information and stories on the coronavirus and how CPAs can handle the challenges of the outbreak, visit JofACoronavirus resources page or subscribe to our email alerts for the latest PPP news.
–Jeff drew ([email protected]) is a JofA senior editor.