Last week, the Small Business Administration (SBA) and Department of Treasury streamlined the path to applying for loan forgiveness under the Paycheck Protection Program (PPP), the lifeline extended to small businesses suffering financial pressures resulting from the COVID-19 pandemic. A revised loan forgiveness application and a new EZ version of the form are designed to slash the layers of paperwork, documentation and calculations required to request loan forgiveness. New instructions for Borrowers were also issued for both the Revised Form and the EZ Form.
The new forms align more closely with changes introduced in the Paycheck Protection Program Flexibility Act (PPP Flexibility Act), signed into law on June 5. They also give Borrowers who received loans prior to June 5 the option of selecting either the original eight-week covered period or an extended 24-week period.
Borrowers may use the EZ form if they:
- are a self-employed individual, independent contractor, or sole proprietor who had no employees at the time of the PPP loan application; OR
- did not reduce any salary or wages of any employee by more than 25 percent AND did not reduce the number of employees or the average paid hours of employees between January 1, 2020 and the end of the covered period (Borrowers can ignore reductions that where Borrowers offered to restore and the employee refused); OR
- did not reduce any salary or wages of any employee by more than 25 percent AND was unable to operate as normal due to compliance with required government health mandates.
Borrowers who do not fall into one of these categories must use the longer form.
The SBA also has updated the third and sixth interim final rules (IFR) to make several modifications that were part of the PPP Flexibility Act.
- Extends the “covered period” for PPP loans from June 30, 2020, to Dec. 31, 2020. The “covered period” for forgiveness is extended from eight weeks to 24 weeks.
- The maturity date on loans disbursed after June 5 is extended from two to five years.
- The percentage of a loan that must be used for payroll expenses was reduced from 75% to 60%.
- Loan forgiveness can include up to the full principal amount of the loan plus accrued interest. In addition, payroll costs are capped at $46,154 per employee for a 24-week covered period and at $15,385 per employee for an eight-week covered period. Business owners are excluded from these calculations.
- Forgiveness of owner compensation has been limited. The maximum amount of forgiveness for individuals filing Schedule C or Schedule F by calculating owner compensation replacement limited to 2.5 months’ worth (2.5/12) of 2019 net profit — up to $20,833 for a 24 week covered period, or up to $15,385 for an eight-week covered period.
There remains some $100 billion in the PPP fund; however, businesses must apply by June 30 for consideration. If you have questions or need assistance, contact OFP Shareholder Michelle DiCintio at 703-218-2197.