New Details on PPP Loan Forgiveness

The Paycheck Protection Program (PPP) has been a valuable tool for Atlanta businesses impacted by the COVID-19 pandemic. When originally initiated as part of the CARES Act it was rolled out very quickly in order to disburse funds to applicants. The drawback to this approach is the need for ongoing program updates necessary to provide clarification and guidance. In August alone, the application deadline passed, the SBA opened the loan forgiveness portal, and Congress failed to additional Coronavirus relief. It is against this backdrop, the SBA updated the PPP Loan Forgiveness FAQ  providing insights into the loan forgiveness process including application, reductions, eligible costs, and EIDL advance repayment. While some of the information has been previously published there are also new details to consider. To help clients, prospects, and others, Wilson Lewis has highlighted the FAQs which offer the greatest insights on loan forgiveness below.

Which loan forgiveness application should sole proprietors, independent contractors, or self-employed individuals with no employees complete?

Sole proprietors, independent contractors, and self-employed individuals who had no employees at the time of the PPP loan application and did not include any employee salaries in the computation of average monthly payroll qualify to use the EZ application.

Are payroll costs that were incurred before the Covered Period but paid during the Covered Period eligible for loan forgiveness?

Yes.

How is the amount of owner compensation that is eligible for loan forgiveness determined?

The amount of compensation of owners who work at their business that is eligible for forgiveness depends on the business type and selected Covered Period. The amount of loan forgiveness requested for owner-employees and self-employed individuals’ payroll compensation is capped at $20,833 per individual in total across all businesses in which there is an ownership stake. For borrowers that received a PPP loan before June 5, 2020, and elect to use an eight-week Covered Period, this cap is $15,385. If the total compensation across businesses that receive a PPP loan exceeds the cap, owners can choose how to allocate the capped amount.

Are nonpayroll costs incurred prior to the Covered Period, but paid during the Covered Period, eligible for loan forgiveness?

Yes, eligible business mortgage interest costs, eligible business rent or lease costs, and eligible business utility costs incurred prior to the Covered Period and paid during the Covered Period are eligible for loan forgiveness.

Are electricity supply charges eligible for loan forgiveness if they are charged separately from electricity distribution charges?

Yes. The entire electricity bill payment is eligible for loan forgiveness (even if charges are invoiced separately), including supply charges, distribution charges, and other charges such as gross receipts taxes.

How do borrowers calculate the reduction in loan forgiveness arising from reductions in employee salary or hourly wage?

Certain pay reductions during the Covered Period or the Alternative Payroll Covered Period may reduce the amount of loan forgiveness a borrower will receive. If the salary or hourly wage of a covered employee is reduced by more than 25% during the Covered Period or the Alternative Payroll Covered Period, the portion in excess of 25% reduces the eligible forgiveness amount unless the borrower satisfies the Salary/Hourly Wage Reduction Safe Harbor.

For purposes of calculating the loan forgiveness reduction required for salary/hourly wage reductions in excess of 25% for certain employees, are all forms of compensation included or only salaries and wages?

A borrower should only consider decreases in salaries or wages.

SBA will deduct the amount of any Economic Injury Disaster Loan (EIDL) advance received by a PPP borrower from the forgiveness amount remitted to the lender. How will a lender know the amount of the EIDL advance that will be automatically deducted by SBA?

If a borrower received an EIDL advance, SBA is required to reduce the borrower’s loan forgiveness amount by the amount of the advance. SBA will deduct the amount of the advance from the forgiveness amount remitted to the lender. The lender will be able to confirm the amount of the advance that will be automatically deducted from the forgiveness payment.

What should a lender do if a borrower received an EIDL advance in excess of the amount of its PPP loan?

A borrower that received an EIDL advance in excess of its PPP loan will not receive any forgiveness, because the amount of an advance is deducted from the forgiveness amount. The lender is responsible for notifying the borrower of the date on which the borrower’s first loan payment is due.

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These FAQs provide important insights into the loan forgiveness process, calculations, and how EIDL advances will be recovered. The details are often complicated, underscoring the need to consult with a qualified advisor to guide you through the process. If you have questions about the information outlined above or need assistance with a PPP loan issue, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.