SBA Issues New Interim Final Rule for Paycheck Protection Program
Several of the amendments to the interim final rule are retroactive to enactment of the CARES Act on March 27, 2020. Small businesses that have yet to apply for and receive a PPP loan need to be informed of the terms of PPP loans as soon as possible because the last day for a lender to obtain an SBA loan number for a PPP loan is June 30, 2020.
The SBA issued a new Interim Final Rule regarding the Paycheck Protection Program loan forgiveness and SBA Loan Review Procedures earlier this week to conform to provisions of the recently passed Flexibility Act. The new Interim Final Rule changes key provisions to conform to the Flexibility Act, including:
- Early requests for loan forgiveness are allowed with some restrictions, but may result in forfeiture of a safe-harbor provision.
- Owner-employee loan forgiveness if the eight-week period elected is capped at the lessor of 0.15 of 2019 compensation, or $15,385; and 0.21 of 2019 compensation or $20,833 for all others elected periods.
- A simplified rule for non-payroll costs paid monthly will allow full months costs during the 24-week period to be included.
- FTE’s that continue to stay the same means that any amount in excess of 25% of their prior weekly salary would become the salary reduction for either 8 times that amount, of election is made, or 24 times without an election, even if forgiveness is requested before the full 24 week covered period has ended. The examples shown have an employee that was paid $1,000 a week for full-time and after the covered period began was paid $700 a week. For a 8 week covered period, there would have been an excess of $25/week times 8 weeks or $400. For all others, including those who request an early forgiveness they must still use 24 weeks times the $25 or $1,200. [Clear as mud, right?]
- The Flexibility Act added two new exemptions based on employee availability and business activity, eliminating a reduction in the loan forgiveness amount otherwise required due to a reduction in FTE’s.
- The deminimis exemption in the First Loan Forgiveness Rule for borrowers that reduced the hours of an employee and offered to restore said reduction in hours, but the employee declined the offer is retained, as it is not addressed in the Flexibility Act. Borrowers are required to inform the applicable state unemployment insurance office of any employee’s rejection of a rehire offer and must do so within 30 days of the rejection being received.
- Accurate calculation of the loan forgiveness amount is the responsibility of the borrower and the borrower attests to its accuracy. Lenders are responsible only to make a good faith review, in a reasonable time, of the borrower’s calculations and supporting documents. For example, minimal review of calculations based on a payroll report by a recognized third-party payroll processor would be reasonable. As the First Interim Final Rule indicates, lenders may rely on borrower representations.
- The timeline for a lender’s decision on forgiveness must occur not later than 60 days after they receive the loan forgiveness application from the borrower.
To understand how these interim rule changes may impact your Paycheck Protection Loan, contact your team at DS+B. Click here to read the Interim Final Rule from the SBA.