SBA and Treasury Issue New Loan Forgiveness Application Form and Guidance for the Paycheck Protection Program Flexibility Act

4 min

Following the June 5, 2020 passage of the Paycheck Protection Program Flexibility Act (PPPFA) (discussed in more detail here and here), the Small Business Administration (SBA) has updated the application materials for borrowers that intend to seek forgiveness, and issued an additional Interim Final Rule (IFR). There are a number of noteworthy changes from the prior application:

  • Application Options: The SBA now provides two loan forgiveness application options:
  • Eligibility for the EZ Application: The EZ application may be used by three groups of borrowers:
    • Self-employed individuals, independent contractors, and sole proprietors with no employees at the time of their PPP loan application.
    • Employers that (i) did not reduce salary or wages of employees earning less than $100,000 by more than 25%, and (ii) did not reduce the number of full-time equivalent employees (FTEs).
      • Employers that (a) were unable to rehire employees or hire similarly qualified employees, or (b) reduced salary or wages of employees that refused offers to restore hours may use the EZ application.
    • Employers that (i) did not reduce salary or wages of employees earning less than $100,000 by more than 25% and (ii) were unable to operate at the same level as February 15, 2020 because of federal COVID-19 health and safety restrictions.
  • Application Materials: The EZ application is more streamlined than the standard application, relying largely on borrower certifications. This approach extends to documentation requirements as well, requiring borrowers to submit documentation verifying payroll and benefit costs as well as non-payroll costs, but not requiring borrowers to submit documentation substantiating the number of FTEs.
    • However, documentation substantiating the various certifications – including certifications regarding the number of FTEs – must be retained.
  • Common Concepts: The EZ and standard applications include a number of common concepts:
    • They define the covered period as either:
      • 8 weeks (for pre-existing borrowers) or
      • 24 weeks (for pre-existing and new borrowers).
    • The $100,000 salary cap has been prorated to account for the 24-week covered period.
      • For 8 weeks, the cap is $15,385
      • For 24 weeks, the cap is $46,154
      • Note: There are separate rules for owner compensation, with a lower 24-week cap of $20,833.
    • The "alternative covered period" is available for the 24-week framework.
    • Non-Payroll costs are eligible if they are "paid or incurred" during the covered period.
    • A borrower that intends to rely on the safe harbor that has been unable to return to its February 2020 level of business activity must retain documentation that includes "copies of the applicable requirements for each borrower location and relevant borrower financial records." The borrower will have to certify to the same as a part of the application.

The IFR released on June 17 is consistent with the IFR released on June 11, and conforms the fifth and sixth IFRs, which were previously posted on SBA's website on April 14, 2020 and April 28, 2020, to the PPPFA. In particular, the June 17 IFR:

  • Confirms that loans made on or after June 5, 2020 have a maturity of five years.
    • Loans made before June 5 will continue to have a maturity of two years unless the borrower and lender mutually agree to extend the maturity date to five years.
  • States that "[a]t least 60 percent of the PPP loan proceeds shall be used for payroll costs," adopting the PPPFA's reduction of the requirement from 75 percent to 60 percent.
  • Confirms that eligible payroll costs include "salary, wages, and tips, up to $100,000 of annualized pay per employee (for 24 weeks, a maximum of $46,154 per individual, or for eight weeks, a maximum of $15,385 per individual), as well as covered benefits for employees (but not owners), including health care expenses, retirement contributions, and state taxes imposed on employee payroll paid by the employer (such as unemployment insurance premiums)."
    • Given the 2.5 multiplier in the calculation of the maximum PPP loan amount, the $46,154 maximum would have been reached only if the borrower had reduced its FTEs but was eligible for a safe harbor from the resulting reduction.

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Venable will continue to monitor legislative developments involving the PPP and any additional guidance issued by the SBA or Treasury.