On Friday May 22, 2020, the U.S. Small Business Administration (SBA) and the U.S. Department of the Treasury contemporaneously issued two interim final rules with respect to the Paycheck Protection Program (PPP). The first rule relates to forgiveness of PPP loans (SBA PPP Forgiveness Rule), and the second rule relates to the SBA’s process for reviewing PPP loan applications and loan forgiveness applications (SBA PPP Loan Review Rule).
Copies of the SBA PPP Forgiveness Rule and the SBA PPP Loan Review Rule can be obtained by clicking on the applicable links below:
The following are a few takeaways of interest with respect to these rules:
SBA PPP Forgiveness Rule. As previously reported by this firm, on May 16, 2020, the SBA issued the Loan Forgiveness Application (SBA Form 3508) with detailed instructions regarding the calculation of forgiveness for PPP loans (PPP Forgiveness Application). Generally, the SBA PPP Forgiveness Rule describes in greater detail with examples the loan forgiveness process, the payroll costs eligible for loan forgiveness, the non-payroll costs eligible for loan forgiveness and reductions to loan forgiveness amount (both for reductions in employees and salary/wages) in a manner consistent with the PPP Forgiveness Application. The SBA PPP Forgiveness Rule also makes a number of additional clarifications.
- Salary, wages or commission payments by the borrower to furloughed employees during the covered period are eligible for forgiveness (so long as they do not exceed an annual salary of $100,000 prorated for the covered period);
- Hazard pay and bonuses paid by the borrower to employees during the covered period are eligible for forgiveness (so long as the employee’s total compensation does not exceed $100,000 on an annualized basis prorated for the covered period);
- Advance payments of interest on covered mortgage obligations are not eligible for loan forgiveness.
- A borrower’s loan forgiveness amount will not be reduced if the borrower laid-off or reduced the hours of an employee, so long as:
- the borrower made a good faith, written offer to rehire such employee (or, if applicable, restore the reduced hours) during the covered period or alternative payroll covered period;
- the offer was for the same salary or wages and same number of hours as earned by the employee in the last pay period prior to the separation or reduction in hours;
- the offer was rejected by the employee;
- the borrower has maintained good records of the offer and rejection; and
- the borrower informed the applicable state unemployment insurance office of the employee’s rejected offer of re-employment within 30 days of the employee’s rejection of the offer.
- To ensure that borrowers are not doubly penalized, the salary/wage reduction applies only to the portion of the decline in employee salary/wages that is not attributable to the reduction in full-time equivalent employees (FTE). The SBA PPP Forgiveness Rule provides the following example:
Example: An hourly wage employee had been working 40 hours per week during the borrower selected reference period (FTE employee of 1.0) and the borrower reduced the employee’s hours to 20 hours per week during the covered period (FTE employee of 0.5). There was no change to the employee’s hourly wage during the covered period. Because the hourly wage did not change, the reduction in the employee’s total wages is entirely attributable to the FTE employee reduction and the borrower is not required to conduct a salary/wage reduction calculation for that employee.
- When an employee of the borrower is fired for cause, voluntarily resigns, or voluntarily requests a reduced schedule during the covered period or the alternative payroll covered period (FTE reduction event), the borrower may count such employee at the same full-time equivalency level before the FTE reduction event when making the FTE employee reduction calculation.
- The SBA may review any PPP loan, as it deems appropriate, including with respect to:
- eligibility under 13 CFR 120.110 (SBA rules on ineligible businesses for PPP loans as modified by SBA guidance) and 13 CFR 121.301(f) (SBA rules on affiliation);
- the information, certifications and representations on the PPP loan application and PPP Forgiveness Application;
- Loan amounts and use of proceeds; and
- Loan forgiveness amounts.
- For a PPP loan of any size, SBA may undertake a review at any time in its discretion (each borrower must retain PPP documentation in its files for six years after the date the loan is forgiven or paid in full and permit SBA representatives to access upon request).
- If SBA determines that the borrower is ineligible for a PPP loan, SBA will direct the lender to deny the PPP Forgiveness Application and may seek repayment of the outstanding PPP loan balance or pursue other available remedies.
- A determination by SBA that the borrower is ineligible for a PPP loan, the loan amount or loan forgiveness amount may be appealed by borrower (SBA will issue separate rules on the appeal process).
- A discussion of the loan forgiveness process for lenders, including the items and information lenders shall review, the timeline for the lender’s decision on the PPP Forgiveness Application, and what a lender should do if it receives notice that SBA is reviewing a PPP loan.
- A discussion of the impact on lender fees with respect to PPP loans if SBA determines a borrower is ineligible.