Alert: PPP Loan Forgiveness Update – Including Good News for Loans Less Than $50K – from Your Part-Time Controller, LLC
This alert shares the latest updates on loan forgiveness under the Paycheck Protection Program (PPP).
The Small Business Administration (SBA) and the Treasury have released a new PPP loan forgiveness application and instructions for borrowers who received loans of $50K or less. The new form provides relief from any reductions to loan forgiveness due to adjustments for full-time-equivalent (FTE) employees and salary or hourly wage reductions.
Here are the highlights on the new guidance as well as answers to some frequently asked questions.
- There’s a new PPP loan forgiveness application for loans of $50K or less. The new form requires fewer calculations and less documentation. Borrowers who use this form are exempt from reductions in loan forgiveness amounts based on reductions in full-time equivalent (FTE) employees or in salaries or wages. Borrowers using this form are still required to provide documentation verifying payroll, benefit, and nonpayroll amounts. While this is not the blanket forgiveness we had hoped for, it does reduce the administrative burden for FTE and salary/hourly wage reduction calculations. Note that a borrower, together with its affiliates, that received PPP loans totaling $2M or more cannot use this form.
- If your entity chooses to apply for loan forgiveness before the end of your covered period, there are some things to consider that may impact your forgiveness calculations. Those considerations include:
- Eligible compensation per employee – maximum compensation will be pro-rated for the period from the start of a borrower’s covered period to when the application is submitted. For example, if a borrower applies for forgiveness at 21 weeks, the maximum amount of eligible compensation for each employee is $40,385 instead of the $46,154 had the borrower applied for forgiveness at the end of their covered period.
- FTE reductions – based on responses provided by the SBA, lenders have issued statements that FTE reductions will be measured at the earlier of the end of the borrower’s covered period or the date of the forgiveness application. This confirms YPTC’s interpretation that FTE reductions occurring after the loan forgiveness application are submitted will not impact a borrower’s loan forgiveness amount.
- Salary or hourly wage reductions – if a borrower files for loan forgiveness before the end of their covered period and is subject to salary/hourly wage reductions, the borrower must account for those salary/hourly wage reductions for the entire covered period.
- Don’t forget there are two safe harbors that exist for exemption from FTE reductions:
- FTE Reduction Safe Harbor 1 – a borrower is exempt from FTE reductions if able to document an inability to return to the same level of business activity as before 2/15/20 due to compliance with COVID-19 safety requirements or guidance issued between 3/1/20 and 12/31/20 by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention (CDC), or the Occupational Safety and Health Administration (OSHA).
- FTE Reduction Safe Harbor 2 – a borrower is exempt from FTE reductions if able to document an inability to rehire employees of the borrower on 2/15/20, and an inability to hire similarly qualified individuals for unfilled positions on or before 12/31/20.
- When determining whether safe harbors are met, a borrower can use the earlier of: 12/31/20, and the date of the loan forgiveness application.
- Remember the 10-month deadline. The Paycheck Protection Program Flexibility Act extended the deferral period from six to ten months, and automatically applied to all PPP loans. A lender is required to apply the statutory extension and notify a borrow; the SBA does not require a formal modification to the promissory note. If a borrower does not apply for loan forgiveness within ten months after the last day of their covered period, the borrower must begin paying principal and interest.
- The SBA has clarified lender procedures for when a borrower submits costs that exceed a borrower’s principal loan amount. The SBA issued clarifying guidance that lenders only need to confirm a borrower’s calculations up to the amount required to reach the requested PPP forgiveness amount. The amount of PPP loan forgiveness that a borrower may receive cannot exceed the principal amount of their PPP loan.
Should your organization apply for PPP loan forgiveness yet?
As always, talk to your YPTC representative or accountant, attorney, and/or lender about what makes the most sense for your organization. Nonprofit borrowers with loans of $50K or less who are eligible to use the new loan forgiveness application form and have their documentation ready will probably want to apply for loan forgiveness if their lender portal is open. Nonprofits with larger loans may want to wait to see if further guidance comes out (which most likely will not be until November). An exception to waiting might be for those organizations going through a merger or acquisition, or worried about meeting debt covenants.
YPTC is here to help. Access our Staying Afloat Resources web page for information and resources to help your organization stay financially afloat during these times of uncertainty.