SBA Recently Issued Guidance on PPP Loan Forgiveness

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As we discussed in our last Alert, the Small Business Administration (SBA) recently released an application for Paycheck Protection Program (PPP) borrowers to request forgiveness of their loans as provided under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The application form and its accompanying instructions provided much-needed guidance on the loan forgiveness process. On Friday, SBA released its Interim Final Rule on Loan Forgiveness with additional details.


SBA recognized that businesses will bear an administrative burden in calculating payroll costs when the eight-week "Covered Period" beginning on the loan disbursement date does not align with the borrower's payroll cycle. They allow the borrower to use an "Alternative Covered Payroll Period" beginning on the first day of the payroll after the loan date. This election is only available to borrowers with biweekly or more frequent payroll cycles, semi-monthly payroll cycles do not qualify.


Payroll costs include first payroll paid during the Covered Period, which may include days before the loan disbursement date. It also includes payment for the last pay cycle in the Covered Period that may be paid after the end of the Covered Period. Even when the Alternative Covered Payroll Period election is selected for payroll costs, the Covered Period for non-payroll costs remains based on the eight weeks following the loan disbursement date.


Salary and wages paid to furloughed employees, as well as bonuses and hazard pay during the eight weeks, are all eligible for loan forgiveness so long as annualized pay does not exceed $100,000. The amount of compensation to owner-employees is limited to 8/52 (about 15.38%) of their 2019 compensation but cannot exceed $15,385 per individual across all businesses.


The rule clarifies the "paid or incurred" language that applies to non-payroll costs. Full forgiveness will be given for all expenses either paid or incurred during the Covered Period, so long as the payment is made before the next regular billing date.


The rule reiterates the exemption from the loan forgiveness reduction calculation for employees who did not accept a good faith offer to be rehired. This exception largely follows previous guidance issued by SBA which we discussed in an earlier Alert. The borrower must inform the state unemployment insurance agency of the rejection within 30 days of the employee's declining the offer. It also exempts from the calculation of the reduction any employee who was fired for cause, voluntarily resigns, or voluntary requests a schedule reduction.


The rule clarifies that otherwise eligible forgiveness expenses must be reduced proportionally based on the reduction in the average number of full-time equivalent employees (FTEEs) during the eight week Covered Period compared to those in one of two reference periods (at the borrower's option, either February 15-June 30, 2019 or January 1-February 29, 2020). It defines a full-time employee as one who works an average of 40 hours a week. For part-time employees, the borrower may calculate a partial FTEE based on the proportion of hours each employee worked compared to 40 hours. Alternatively, a borrower may simply count every part-time employee as one-half of an FTEE.


The rule addresses the reduction in loan forgiveness required when salary or wages is reduced by more than 25%. It clarifies that the reduction is performed on a per-employee basis, not in the aggregate. This reduction only applies to employees who did not earn more than the annualized equivalent of $100,000 in any pay period in 2019. The salary in the Covered Period or the Alternative Payroll Covered Period is compared to average base salary from January 1-March 31, 2020.


The rule avoids a double penalty by clarifying that although employees whose hours are reduced will be included in the FTEE reduction, the fact that they receive lower wages as a result of the reduction in hours does not also count in the salary/wage reduction calculation.


The rule emphasizes that either type of forgiveness reduction (workforce or salary) may be avoided if the reduction that took place from February 15-April 26, 2020 is eliminated by June 30, 2020.




New York Forward Loan Fund (NYFLF) is a new economic recovery program aimed at supporting New York State small businesses with 20 or fewer full-time equivalent (FTE) employees (90% of all businesses), nonprofits, and small landlords that have seen a loss of rental income.


NYFLF is providing working capital loans so that small businesses, nonprofits, and small landlords have access to credit as they reopen. These loans are available to small businesses, nonprofits, and small landlords that did not receive a loan from either the US Small Business Administration Paycheck Protection Program (PPP) or Economic Injury Disaster Loans (EIDL) for COVID-19 in 2020. The loans are not forgivable in part or whole. The loans will need to be paid back over a five-year term with interest.


Access to loans for small landlords will be targeted to owners with residential buildings of 50 units or fewer and will prioritize loans for landlords whose properties are in low- and moderate-income census tracts or who serve low- to moderate-income tenants.


The New York Forward Loan Fund is supported by Apple Bank, BNB Bank, BlackRock Charitable Fund, Citi Foundation, Evans Bank, Ford Foundation, M&T Bank, Morgan Stanley, Ralph C. Wilson, Jr. Foundation, and Wells Fargo.


Preapplications for the New York Forward Loan Fund are now open. Priority will be given to industries and regions that have reopened. This is not a first-come, first-served loan program. Applications will be reviewed on a rolling basis as regions and industries reopen. Click here for more information.


During this crisis, your LMC professional is available if you have questions related to the latest updates on this topic.  All our prior Alerts are available on the Updates page of our website.


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