PPP Flexibility Act Update: The Newest Rules and Regulations as of June 23, 2020
There are a few new things you should be aware of if you have received a PPP loan. The newest piece of information is that as of June 22, 2020, PPP recipients can apply for loan forgiveness early but that doing so could cost them money.
The newest guidance clarifies that freelancers and other solo self-employed persons can expect to receive 100% forgiveness if they choose the 24-week measurement period, which is automatic for anyone who applies after June 5. The SBA also released a simplified forgiveness application, Form 3508EZ, and instructions specifically designed for very small businesses and the self-employed. Funds are still available for this program, but applications will be accepted only through June 30.
According to an agreement made between the SBA, Treasury, and Senate leaders, if you received a PPP loan of more than $150,000, your name and the amount you received will be made public.
Last week, on June 17, 2020, the SBA and U.S. Treasury released a revised loan forgiveness application for the Paycheck Protection Program (the “PPP”) and unveiled a new EZ application for forgiveness of PPP loans. In addition, on Friday, June 19, 2020, the SBA released a revised interim final rule that implements changes to the Paycheck Protection Program Flexibility Act (the “Flexibility Act”).
Key Points to the revised loan forgiveness application include:
• Borrowers that received loans prior to June 5, 2020 can choose between using the original 8-week covered period or the new 24-week covered period.
Any borrower choosing the 24-week covered period must measure headcount and salary/wage reductions during the entire 24-week period even if the borrower has exhausted the PPP funds before the 24-week period expires. This could result in a borrower losing a portion of the forgiveness amount if the borrower experiences a reduction in headcount and/or salary or wages after spending all of the PPP funds but before the 24-week covered period expires.
• The cap on salary/wages payable to employees (excluding owner-employees) for which PPP loan forgiveness is permitted has been increased to $46,154 (24/52 of a $100,000 annual salary) for borrowers who choose to utilize the 24-week covered period. In addition, the cap for payments to owners (owner-employees, self-employed individuals, or general partners) is increased. Borrowers using the 24-week covered period may seek forgiveness for up to the lesser of (a) $20,833 (2.5 months of a $100,000 annual salary) or (b) 2.5/12 multiplied by the owner’s 2019 applicable compensation.
• Safe harbors for recapturing salary/hourly wage reductions and reductions in the number of employees from loan forgiveness reductions can be applied as of the date the loan forgiveness application is submitted. The safe harbor date for restoring payroll and/or headcount is now either December 31, 2020, or the date of the forgiveness application. Borrowers do not have to wait until December 31 to apply for forgiveness to use the safe harbors.
• Health insurance costs for self-employed individuals, general partners and S corporation owners cannot be included in calculating payroll costs but retirement costs of S corporation owners (but not self-employed individuals and general partners) are eligible costs.
The revised loan forgiveness application can be found here.
Highlights to the new EZ application include:
• The new EZ application form is a simplified version of the revised standard PPP forgiveness application and requires fewer calculations and less documentation than the revised standard forgiveness application. Borrowers are still required to keep all back-up documentation evidencing the payments for which forgiveness is being sought, including, among other items, payroll records, leasing agreements, and utility bills. The EZ application may be submitted to the PPP lender electronically.
• The EZ application can only be used by borrowers that:
Are self-employed and have no employees;
Did not reduce the salaries or wages of their employees by more than 25% and did not reduce the number or hours of their employees; or
Were unable to operate during the relevant covered period at the same level of business activity as before February 15, 2020 due to compliance with COVID-19 related safety regulations and did not reduce the salaries or wages of their employees by more than 25%.
“Employees” include only those employees that did not receive, during any single pay period during 2019, salary or wages at an annualized rate of pay in the amount of more than $100,000.
There has been no guidance issued regarding how borrowers should measure business activity before and after February 15, 2020 to satisfy the third option for using the EZ application.
The new EZ application can be found here.
New SBA Interim Final Rule
The new SBA interim final rule released June 19, 2020, includes, among other items, several updates to prior interim final rules to reflect the passage of the Flexibility Act. Highlights include:
• The portion of PPP funds that must be used on payroll to qualify for full forgiveness drops to 60% from 75%.
• The minimum term for PPP loans is raised to 5 years for loans made on or after June 5. For loans made before June 5, the 2-year maturity remains in effect unless both the borrower and the lender agree to extend it to 5 years.
• The amount of loan forgiveness can be up to the full amount of the loan plus accrued interest.
• The PPP application deadline remains June 30, 2020.
Confused about the weekly onslaught of PPP Flexibility Act changes? No need to worry. Reach out for a complimentary consultation today!
