SBA Issues Revised “Borrower-Friendly” Forgiveness Applications

The U.S. Small Business Administration (SBA) has issued revised forgiveness applications for loans issued through the Paycheck Protection Program (PPP). According to the Department of the Treasury (Treasury), the revisions are “borrower-friendly” and implements the PPP Flexibility Act of 2020 (PPPFA) (see below for these changes).

The SBA also published a new EZ version of the forgiveness application, which requires fewer calculations and less documentation for eligible borrowers. There are three tests for borrowers to determine eligibility for using the EZ Form:

Test 1Test 2Test 3
Are self-employed and have no employees; OR
Did not reduce the salaries or wages of their employees by more than 25% and did not reduce the number or hours of their employees; OR
Experienced reductions in business activity because of health directives related to COVID-19 AND did not reduce the salaries or wages of their employees by more than 25%.

Both applications give borrowers the option of using the original 8-week covered period (if their loan was made before June 5, 2020) or an extended 24-week covered period. These changes will result in a more efficient process and make it easier for businesses to realize full forgiveness of their PPP loan.

    Changes Established in the Program

    Following is a summary of some of the changes that came from the PPPFA, from an interim final regulation issued since the PPPFA was signed on June 5, and from the applications themselves:

    1. PPPFA changed the minimum payroll requirement of 75% down to 60% but added a provision that indicated you could not get any forgiveness if you didn’t spend at least 60% on payroll expenses; however, the regulation issued subsequently by SBA changed this and indicates that you can still get partial forgiveness if <60% of your applied forgiveness is payroll expense.
    2. For PPP loans taken June 5, 2020, or after, you have to repay any unforgiven principal over five years. For PPP loans taken before June 5th, you will have to repay over two years, but you and your lender can mutually agree to 5 years in a restructure.
    3. The June 30th date was removed from the regulations and replaced with December 31st. This means the June 30 safe harbor for having restored Full-Time Equivalents (FTEs) is moved to 12/31. What we don’t yet know is whether SBA will allow an earlier date for this safe harbor if someone has used up all their potential forgiveness. We are still waiting for further regulatory guidance.
    4. Forgiveness applications need to be filed within 10 months of the end of the forgiveness covered period or the full loan will start to amortize.
    5. You may elect to retain the prior 8-week covered period, otherwise, you will have 24 weeks. This election would be made when you apply for forgiveness.
      Some have asked, “Since the 8 weeks is extended to 24, can I just report payroll and not worry about the 60-40 cap if payroll covers all the loan?”  The answer is – Absolutely!
    6. For the 24-week period, individual compensation for owners is capped at $20,833 per individual (2.5 months), while compensation for non-owners is capped at $46,154 (this change was clarified in the instructions to the application itself and had not been covered in either the PPPFA or the interim final regulations.)
    7. Finally, a bonus for companies that are more heavily leveraged – the new interim final regulation added a new item to the list of expenses – “interest payments on any other debt obligations that were incurred before February 15, 2020.”

    We’ve been advised by the American Institute of Certified Public Accountants (AICPA) that the SBA plans to issue around 30 additional Q&As very soon. Additionally, the AICPA indicated that they believe companies electing the 24-week forgiveness period will be able to submit a forgiveness application earlier if they HAVE spent all the funds earlier.

    We are keeping a watchful eye on this continuously evolving and will continue to keep you informed when there is additional information to report. Please contact me or your BMF Advisor if we can provide additional assistance.

    Visit our COVID-19 Resource Center for information and resources for you and your business.

    About the Authors

    James E. Merklin
    James E. Merklin
    Partner, Assurance and Advisory


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