June 26, 2020
On June 22, the U.S. Small Business Administration (SBA) released additional guidance regarding Paycheck Protection Program (PPP) loan forgiveness. A recent article from the Journal of Accountancy summarizes the information contained in the release.
The new interim final rule primarily addresses changes made by the Paycheck Protection Program Flexibility Act of 2020. This is the second round of guidance following the new legislation. It seeks to respond to inquiries regarding applying early for PPP loan forgiveness.
Monday’s release clarifies that if a small business applies for early PPP loan forgiveness, they become ineligible for the safe-harbor provision that grants borrowers an extended time period (until December 31) to restore salaries/wages and avoid experiencing a reduction in their loan forgiveness amount. The Journal of Accountancy offers the following illustration:
Example: A borrower is using a 24-week covered period. This borrower reduced a full-time employee’s weekly salary from $1,000 per week during the reference period to $700 per week during the covered period. The employee continued to work on a full-time basis during the covered period, with an FTE of 1.0. In this case, the first $250 (25% of $1,000) is exempted from the loan forgiveness reduction. The borrower seeking forgiveness would list $1,200 as the salary/hourly wage reduction for that employee (the extra $50 weekly reduction multiplied by 24 weeks). If the borrower applies for forgiveness before the end of the covered period, it must account for the salary reduction for the full 24-week covered period (totaling $1,200).
Additionally, the new interim final rule makes it clear that the onus for providing an accurate loan forgiveness calculation falls on the borrower, not the lender. While lenders are required to review the calculations and documents provided by the borrower, they are not charged with independently verifying the calculation.