As the window for PPP Applications closes, we’re getting more and more guidance on PPP Forgiveness. Since our last eBulletin on June 17, SBA has issued IFR 2020-0037, 2020-0038 and 2020-0039.  And as Borrowers from early in the PPP process begin to hit the end of the 8-week covered period, more information is coming to light on the Forgiveness Application and Calculation. SBA has even issued deadlines for lender review and response.

The missing piece. How do Lenders submit their decision to SBA?   By ETran?  A new Tab submission in our future? Time will tell. Until then, let’s take a look at the recent IFRs and touch on the certainty and clarification we do know. Here’s the laundry list:

Covered Period for Forgiveness:

  • Loans approved prior to 6/5/2020 can choose between an 8-week covered period or a 24- week covered period.
  • Loans approved on or after 6/5/2020 have a 24-week covered period.

Loan Maturity has changed as well:

  • Loans approved prior to 6/5/2020 remain at 2 years unless Borrower and Lender mutually agree to extend to 5 years.
  • Loans on or after 6/5/2020 have a 5-year maturity.

Portion on the Loan required for payroll use has been reduced from 75% to 60%.

Borrowers may apply for Forgiveness anytime within 10 months of the last day of the covered period.  If they do not apply within the 10 months, they need to start making P & I payments on the outstanding balance over the remaining term of the loan or until it is paid in full.

Caps on the amount of forgiveness to owner-employees and self-employed individuals has been clarified:

  • PPP loans on or before 6/5/2020 that chose the 8-week covered period are capped at 8 weeks of 2019 compensation (8/52) or $15,385 per individual.
  • C-Corps are limited to the amount of the 2019 employee cash compensation and their employer retirement health insurance contributions on their behalf.
  • S-Corps are limited to the amount of their 2019 employee cash compensation and their employer retirement contributions made on their behalf. (employer health insurance contributions are excluded as they are already included in cash compensation).
  • C or F Filers are capped by the amount of their owner compensation replacement based on 2019 net profit.
  • General Partners are capped by the amount of their 2019 net earnings from self-employment (minus by claimed section 179 expense deduction, unreimbursed partnership expenses, and depletion of oil & gas properties) x 0.9235.)
  • For self-employed individuals (including Sched. C, Sched. F and General Partners) retirement and health insurance contributions are included in their net self-employment income and therefore cannot be separately added to their payroll calculation.

Lenders responsibility during Forgiveness:

  • Confirm receipt of the Borrower Certification in Form 3508
  • Confirm receipt of Documentation the Borrower must submit as specified in Form 3508
  • Confirm Borrower’s calculations on Form 3508 or Form 3508 EZ and Schedules
  • Confirm that the Borrower made the calculation on Line 10 of Form 3508 or Line 7 of Form 3508 EZ correctly
  • Lender must decision the Forgiveness application within 60 days of receipt of complete application from the Borrower.
  • Denial of application must be in writing
  • Allow the Borrower to appeal the decision

And more to come. We’ll talk more about notifications to SBA during forgiveness and the review and appeal process in my next eBulletin. Until then, stay safe and have a wonderful 4th of July!

Rebecca Mendoza
Senior Associate