Last week, the Small Business Administration (SBA), in concert with the Department of Treasury, published new FAQs to address four key aspects regarding forgiveness of Paycheck Protection Program (PPP) loans. The 10-page FAQs, published on Aug. 4, are designed to help borrowers calculate how much of their loan is forgivable and clarify the calculations and process required to qualify for loan forgiveness.
The first portion of the new guidance addresses General Loan Forgiveness for sole proprietors, independent contractors and self-employed individuals who had no employees at the time of loan application. Such borrowers should use PPP Loan Forgiveness Application Form 3508EZ.
The next set of FAQs addresses Loan Forgiveness Payroll Costs on the PPP Loan Forgiveness Application and addresses questions related to determining forgiveness for payroll costs that may have been incurred or paid outside of the eight-week or 24-week “covered periods”, partial pay periods, types of compensation covered, group health care benefits and retirement benefits. The FAQs also offer useful examples to help owners of various types of entities derive the amount of owner compensation that will be forgiven.
Loan Forgiveness Nonpayroll Costs walks borrowers through several scenarios regarding forgiveness of operating costs, such as utility payments, mortgages/leasing payments, and provides guidance regarding nonpayroll costs incurred or paid outside of the eight-week or 24-week covered periods.
The final section of the updated FAQs addresses Loan Forgiveness Reductions. Specifically, these questions provide examples to assist borrowers in calculating any reduction in loan forgiveness for employers who may have offered but failed to rehire laid off workers, for seasonal businesses and for instances of salary/wage reductions.
Since its inception in late March, the PPP has been fraught with ambiguities, requiring the Small Business Administration (SBA) to issue several rounds of clarifications and updated guidance to ensure the program’s availability to as many struggling small businesses as possible. The PPP is designed to provide a financial safety net to stave off employee layoffs and help small businesses weather the effects of the COVID-19 pandemic. As previously reported, a key feature of the program is the ability of organizations that strictly adhere to the guidelines to have all or a portion of their loans forgiven.
Given the fluid nature of the program, borrowers should watch for future guidance updates to pinpoint the best time to apply for loan forgiveness. For more information, or to discuss your unique situation, contact OFP Shareholder Michelle DiCintio at 703-218-2197.