The SBA Strikes again with updates to the PPP
Updated: Nov 20, 2020
The Small Business Association (SBA) strikes again over the weekend with more guidance has come from regarding how banks and borrowers should document and manage the Payroll Protections Program (PPP) process. The new 26 pages of guidelines (SBA-2020-0033) released on May 22nd, 2020 by the SBA helps clear up some of the lingering questions from the SBA Forgiveness Application which was released on May 16th. One of my main takeaways from the interim final rule 26-page document is that it reinforces what is considered a forgivable expense by the program. These are still Payroll costs, interest on pre-existing mortgages, rent, and utilities.
Payroll Costs The new document dives deeper into what can be included in payroll costs showing that in addition to the typical salary, commissions, and bonuses, expenses for vacation, family leave, medical, sick, severances payments can be included as well as state and local payroll taxes and health care and retirement payment costs (though what expenses related to retirement are within the guidelines and what is outside the guidelines still needs further clarification). There is an interesting portion on employees who receive money from tips. The idea is that this is a customer paying an employee and not an employee expense, but even so, this is includable in the PPP Forgiveness calculation. The document also expands on the time that qualifies for forgiveness if the borrower has a bi-weekly or more frequently pay period.
FTE Calculation There is further clarification on what weekly hours to use in the calculation for the FTE reduction portion of the Forgiveness Application. Full-time staff will be calculated at 40 hours per week and part-time staff can be calculated using 20 hours per week. Also, if an employee was fired for cause or voluntarily resigns or requests a schedule reduction, they will do not need to be included in the reduction calculation for the company. Also, if employees are receiving reduced compensation because they are working reduced hours, the compensation piece will not be included in the calculation, so businesses are not penalized twice for the change.
Accrued Expenses The new rules confirm that the mortgage interest obligation must have existed on or before February 15th,2020 to qualify and this applies to both real and personal property. However, there is no language on the interest rates for these loans. It seems as if the current rules would allow the interest rate on these loans to be changed which brings up an interesting situation for some of the loans that are not charging interest at fair market value or are held by related parties. Another thing to note about interest payments is the rules still state that expenses can not be prepaid, however, it seems like past interest (or any other qualifying expense) that had been accrued was paid during the 8 week period would indeed qualify.
IRC Section 179 Self-Employed borrowers and those who are general partners in a company received some good news with the newest guidelines. The calculation for these borrower’s self-employment calculations will no longer include the IRC section 179 depreciation deduction. However, those who are self-employed still cannot receive forgiveness for those amounts they provide themselves for retirement or health insurance-related expenses.
Timeline SBA-2020-0033 laid out timing guidelines as well. It states that banks will have 60 days to review the Forgiveness Application after it is submitted and once submitted to the SBA the Small Business Association will have 90 days to remit the application amount back to the bank. If the SBA deems the company should not have the amount forgiven, then the bank will suffer a loss of their 5% loan fee. The newest guidelines also state that PPP documentation should be retained for 6 years after the date the loan is either 1) forgiven, or 2) repaid in full.
As the guidance on the Payroll Protection Program forgiveness is sure to continue to grow and change, we will keep you informed of the latest application rules and guidelines.