SBA Publishes New FAQs Clarifying PPP Loan Forgiveness

On August 4, 2020, the US Small Business Administration (SBA) released a series of new Frequently Asked Questions (FAQs) specifically addressing Paycheck Protection Program (PPP) loan forgiveness.  The FAQs can be found in their entirety here.

Some highlights which the SBA has clarified:

• Borrowers who submit their loan forgiveness application within ten months of the end of their Covered Period are not required to make any payments until the SBA remits the amount forgiven to the lender. Payments will become due on any amounts not forgiven after this point through the loan maturity date.
• Both 1) costs incurred during but paid after, and 2) costs incurred before but paid during the Covered Period or Alternative Payroll Covered Period are eligible. This applies to both payroll and non-payroll (mortgage, rent, utilities) costs.
  • Costs paid after must be paid on or before the next payroll date or next regular billing date (for non-payroll costs) to be eligible.
• Lost tips, lost commissions, bonuses, and other forms of incentive pay are eligible for forgiveness so long as they do not exceed $100k annualized.
• Employer contributions for health care and retirement are eligible. However, health care costs and retirement costs accelerated into the Covered Period or Alternative Payroll Covered Period are not eligible. 
• Interest on unsecured credit is not eligible for loan forgiveness. Mortgage interest paid on real or personal property is eligible.
• Lease payments and interest payments on obligations that existed prior to February 15, 2020 which were then renewed or refinanced are eligible.
• Transportation utility costs are defined as “transportation utility fees assessed by state and local governments.” These costs are forgivable.  More information here.
• Only reductions in salaries/wages should be considered in determining the salary/hourly wage reduction – not other forms of compensation.
• Expanded detail on eligible owner compensation broken down by owner type is included in FAQ #8 on page 4 under the “Loan Forgiveness Payroll Costs FAQs” heading.
• Some good examples illustrating loan forgiveness reductions start on page 8 under the heading “Loan Forgiveness Reductions FAQs.” We recommend all borrowers with reductions in FTEs and/or hourly/salary wage reductions review this in detail.

Borrowers should check back periodically.  The SBA released an initial PPP FAQ document in April and has continually updated it (most recently as of June 25, 2020).  It is probable that the loan forgiveness FAQs will evolve over time in a similar manner.  If you have any questions about how these FAQs apply to your organization’s PPP loan, please reach out to a HoganTaylor business advisor, and we’d be happy to discuss.

A few pending developments worth mentioning that we will continue to monitor:

• The Paycheck Protection Small Business Forgiveness Act was introduced to Senate on June 30, 2020. If passed, this bill would grant automatic PPP loan forgiveness to recipients whose loans are less than $150,000 if the recipient submits a one-page form.  PPP loan recipients whose loans are below this threshold may wish to hold off on applying for loan forgiveness until we see if this or something similar becomes law.  The bill is still pending at the time of writing this article.
• Although borrowers may submit a PPP loan forgiveness application at any time before the maturity date of the loan – including before the end of the Covered Period (see IFR 38306), many banks are still not yet accepting PPP loan forgiveness applications at the time of writing this article.
• Although the CARES Act explicitly indicates that PPP loan forgiveness should be excluded from taxable income, the IRS has taken the position that the costs forgiven are also not deductible (see IRS Notice 2020-32). Congress has been urged by business groups to allow these costs to be deductible, arguing that the intent behind the CARES Act was for PPP loan forgiveness to be tax-free.  No action has been taken to mitigate this at the time of this article.  This uncertainty poses challenges for PPP loan recipients as they try to ensure they pay in adequate 2020 quarterly tax estimates.  It also creates uncertainty for borrowers who may incur forgivable costs during 2020 but who may not receive PPP loan forgiveness until 2021.

Still have questions about PPP Loan Forgiveness? Download our Frequently Asked Questions Document.