SBA Releases Two Interim Final Rules for the PPP
May 28, 2020
On Saturday, May 23, the SBA released two new interim final rules for the Paycheck Protection Program, or PPP. This blog post overviews the significant new points contained in the rules but is not intended to be comprehensive, especially for matters which have been previously discussed in previous interim final rules or the application for loan forgiveness. More details will come out in the days ahead.
RIN 3245-AH46: Loan Forgiveness
This rule repeats much of the previous guidance issued for the loan forgiveness application (released on May 15), but also clarifies several matters.
- The SBA will review loan forgiveness applications and remit applicable proceeds within 90 days of the lender’s review of the forgiveness (which must be completed within 60 days of the borrower’s application submission).
- The SBA will notify lenders (who will, in turn, notify borrowers) if they determine that the borrower was ineligible or that the amount of loan forgiveness should be reduced.
Guidelines for Borrowers:
- Any loan proceeds that have been deemed ineligible or unforgiveable by the SBA must be repaid within 2 years (we initially believed that repayment would be immediate).
- Employees may be paid salaries, wages, commissions, and bonuses up to $100K (prorated to 8 weeks), even if furloughed or not otherwise working due to lack of demand or health considerations.
- In the forgiveness application, borrowers (excluding self-employed and general partners) may include non-cash compensation paid to owner-employees, including health insurance premiums, retirement payments, and state & local taxes on compensation.
- Forgivable compensation is capped at $100K (prorated to 8 weeks, or $15,385), even though the borrower may be able to include more than 8 weeks of compensation in its covered period, for purposes of administrative convenience.
- Owner-employee compensation is capped at their prorated 2019 compensation, not to exceed $15,385 during the covered period
- General partner compensation is capped at their 2019 net earnings from self-employment, and reduced by claimed §179 expense deduction
- Reductions in forgiveness due to reduced FTEs are more onerous than reductions due to salaries, because FTEs reduce the forgiveness by the percentage of FTE reductions. Salary reductions are only dollar-for-dollar reductions below a reduction of more than 25% in salaries for an individual employee.
- The June 30 safe harbor of restoring FTEs and salaries is only available if the borrower had a reduction in FTEs or salaries between February 15, 2020 and April 26, 2020. If the borrower did not have a decrease in FTEs or salaries during this look-back period, the safe harbor is not available should the borrower have a reduction during the covered period compared to their look-back periods (Q1 for salaries and either February 15, 2019 through June 30, 2019 or January 1, 2020 through February 29, 2020 for FTEs.)
RIN 3245-AH47: SBA Loan Review Procedures
This rule addresses the SBA’s procedures in reviewing the eligibility of a borrower for their PPP loan and subsequent forgiveness of the loan.
- The SBA may review any PPP loan of any size that the Administrator deems appropriate.
- The SBA may review a borrower’s eligibility for a PPP loan based upon the rules and guidance available at the time the PPP loan application was submitted and certified by the borrower.
- The SBA may review the amount of the loan and forgiveness.
- Borrowers must retain PPP documentation for 6 years after the loan forgiveness or loan repayment date.
- A borrower is ineligible for forgiveness if the SBA deems that they were ineligible for the PPP loan.
Borrowers are responsible for calculating their loan forgiveness and providing supporting documentation. Lenders are expected to perform a good-faith review of these calculations and documentation. For example, minimal review of calculations based on a payroll report by a recognized third-party payroll proce