Guidance on SBA PPP Loan Forgiveness Portal

While the SBA is still preparing for the anticipated August 10 launch of its loan forgiveness portal, earlier this week it released new guidance answering 23 frequently asked questions (“FAQ”) regarding the forgiveness of Paycheck Protection Program loans. The FAQs, published in a new 10-page document, reinforce previously issued guidance and provide new information to assist borrowers in preparing their loan forgiveness applications.

1) General loan forgiveness: The guidance clarifies that sole proprietors, independent contractors, and self-employed individuals who had no employees at the time of the PPP loan application and did not include any employee salaries in the computation of average monthly payroll in the Borrower Application Form automatically qualify to (and should) use the PPP Loan Forgiveness Application Form 3508EZ. The guidance further reaffirms that a borrower will not have to make any payments (principal or interest) for the portion of the PPP loan that is forgiven so long as the borrower timely submits its forgiveness application.

The new FAQ document also provides guidance for business owners who own multiple businesses, confirming that a business owner can only receive the maximum for PPP forgiveness for one entity. For individuals who have multiple businesses with PPP loans, they are capped at $20,833 in owner compensation replacement across all loans obtained by all businesses.

2) Loan forgiveness of payroll costs: The guidance provides helpful  examples for owners of C and S corporations, self-employed Schedule C (or Schedule F) filers, general partners, and LLC owners. This guidance also defines “an owner-employee” as someone who is both an owner and an employee of a C corporation. That term was first utilized in the SBA’s previously released PPP loan forgiveness application, but was not previously defined.  

The new SBA guidance also reaffirms that employee group health care and retirement benefits that are paid or incurred are eligible payroll costs. However, the SBA further clarified that these eligible costs do not include expenses for group health care and retirement benefits accelerated from periods outside the Covered Period or Alternative Payroll Covered Period or group health care benefits paid by employees. Further guidance includes: 

Payroll costs incurred before, but paid during, the covered period (or alternative payroll covered period, if applicable) remain eligible for forgiveness. Thus, if a PPP loan was received on May 5 but the borrower had payroll running from April 23 to May 7 and paid that full payroll amount on May 7, the entire payroll can be included in the forgiveness application because it was paid during the covered period. Similarly, if the covered period expires on July 30 and payroll ran from July 23 to August 6, and the payroll is paid August 6, all payroll incurred from July 23 to July 30 but paid on August 6 is also eligible for forgiveness. 

The guidance also re-affirms that gross amounts should be used when calculating the cash component of payroll costs and that tips, commissions, bonuses and hazard pay are eligible payroll costs, including the “make-up” payment by the employer of any lost tips or commissions.

3) Loan forgiveness nonpayroll costs: The guidance newly defines that forgivable transportation costs include only those payments of transportation utility fees assessed by state and local governments. Further, it is now clarified that interest on unsecured credit, such as from lines of credit and credit cards, is not eligible for forgiveness. Interest on loans for equipment, mortgages and other real property remains eligible to be forgiven. 

The guidance also establishes that rent payments on leases that were renewed, and interest payments on mortgage loans that were refinanced, remain eligible for forgiveness so long as the original lease or mortgage loan was in existence prior to February 15, 2020. The guidance confirms that nonpayroll costs incurred or paid outside of the eight-week or 24-week covered periods are not to be forgiven and thus are treated differently than payroll costs. The alternative covered period that may be used for payroll costs does not also apply to nonpayroll costs. For non-payroll costs, the standard covered period must be used when calculating forgiveness.

4) Loan forgiveness reductions: The new guidance explains with examples how borrowers should calculate the reduction in their loan forgiveness amount arising from reductions in employee salary or hourly wage. Three examples of the salary/hourly wage reduction are included.

With respect to wage reductions, the guidance establishes that only the wages and salaries are to be considered (not tips, bonuses, and commissions) when determining if wages are reduced by more than 25% for purposes of forgiveness reduction thresholds.  Thus, if an employee’s $50k annual salary is not reduced by the employer, but the employee loses commissions and bonuses which usually lead to an annualized salary of $100K, that loss or “cut” in pay does not impact the employer’s forgiveness calculation.

Forgiveness will also not be reduced if similarly qualified individuals cannot be located to fill open positions if the employer can document that it took commercially reasonable steps to find and hire such similarly qualified individuals. The new guidance also confirms that if an employee is offered re-hiring and the employee refuses to accept the job, which refusal is documented in writing, that employee will not impact FTE counts for forgiveness reduction purposes. However, the SBA may require evidence that the state unemployment agency was notified of the rejection of the employment offer. If proper notice to the state authorities was not provided, the SBA may use that as a basis to reduce eligible forgiveness amount.