SBA Reviews Extend Paycheck Protection Program Eligibility and Loan Remission | McCarter & English, LLP

On June 19 and 22, 2020, the Small Business Administration (“SBA”) released further revisions to its first interim final rule regarding the Paycheck Protection Program (“PPP”). The Revised provisional final rule and the Revisions to the Interim Final Loan Forgiveness Rule (collectively the “revised rules”) provide guidance to Paycheque Protection Program Flexibility Act (the “Flexibility Law”) promulgated on June 5, 2020.

The new period covered

The flexibility law and revised rules extend the length of time PPP loan recipients must spend the proceeds of PPP loans from eight weeks to 24 weeks, and extend the initial coverage period for PPP loans until December 31. Borrowers who received their loans before June 5 have the option of continuing to use the eight week period as their covered period. This allows borrowing companies more time to spend P3 proceeds and rehire employees on leave or laid off. However, it should be noted that the SBA is still only allowed to approve and assign SBA numbers to PPP loans through June 30, 2020, which forces borrowers to apply for PPP loans before this deadline.

Loan remission

The revised rules provide more flexibility for borrowers requesting loan forgiveness. The costs eligible for pardon are made up of salary costs and non-salary costs. “Labor costs” include the following compensation for employees whose principal place of residence is in the United States, in the form of (1) salary, wages, commissions or similar compensation (up to 100,000 $ annualized); (2) tips in cash or the equivalent (based on the employer’s records of past tips or, in the absence of such records, a reasonable and good faith estimate by the employer of such tips) ; (3) payment of vacation, parental, family, medical or sick leave (excluding payments for emergency paid sick leave or extended family and medical leave); (4) severance or dismissal indemnity; (5) payment for the provision of social benefits consisting of group health care coverage, including insurance and pension premiums; and (6) payment of state and local taxes assessed on employee compensation (but not federal payroll tax).

“Non-salary costs” include the following: (1) interest payments on any commercial mortgage obligation on real or personal property; (2) payments on commercial rent obligations on real or personal property under a rental agreement; and (3) commercial utility payments for electricity, gas, water, transportation, telephone or Internet services.

The per employee limit for cash compensation costs for the eight week period (but not other salary costs) is capped at $ 15,385 per person (8/52 weeks of $ 100,000); for borrowers using the new 24 week covered period, it is capped at $ 46,154 (24/52 of an annual salary of $ 100,000). However, compensation for business owners is subject to a lower limit of $ 20,833 for all of their businesses (2.5 months / 12 months of $ 100,000) for a covered period of 24 weeks. Essentially, the amount for each owner is limited to the total amount of that owner’s compensation included in calculating the PPP loan amount (250% of the average monthly compensation for 2019).

Calculation of the compensation of the business owner

Example 1. Eight week period 8 ÷ 52 × 2019 net income, up to a maximum of $ 15,385.
Example 2. 24 week period 2.5 months (2.5 ÷ 12) of 2019 net income, up to $ 20,833.

Full discount is now possible for borrowers by using 60% of the PPP proceeds on salary costs and the remaining 40% on other permitted non-salary expenses. Borrowers using the eight-week or 24-week covered period can request a loan forgiveness before the end of the covered period when they have spent the P3 proceeds, but the discount reduction for wages and salaries is always extended for the entire period covered.

On June 17, 2020, the ASB published its revised version PPP loan forgiveness request (the “Loan forgiveness request”). The five-page simplified loan forgiveness request allows borrowers to detail how they spent their P3 funds and then calculate how much should be forgiven.

The PPP compares the average number of full-time equivalent (“FTE”) employees the borrower has each month during the period covered to the average number of monthly FTEs the borrower employed during one of the two periods. reference. The borrower can choose as the reference period either (1) the period from February 15 to June 30, 2019, or (2) the period from January 1 to February 29, 2020. In practice, the borrower must calculate the number of FTEs during these two periods and choose the period with the smallest number of FTEs. The PPP loan forgiveness is reduced (a) in proportion to the decrease in the average FTE during the period covered compared to a reference period chosen by the borrower, and (b) dollar for dollar for the amount of the loan. reduction in excess of 25% of the total wages and salaries of any employee during the eight-week or 24-week period covered from a qualifying period. The Flexibility Act Expanded the safe harbor for FTE reduction for rehiring employees and receiving loan cancellation reductions under the P3 from June 30 to December 31, 2020.

However, Safe Harbor 2 for FTE Reduction on page 4 (see Steps 1 through 5) of the Loan Forgiveness Request allows borrowers to eliminate FTE reductions from the forgiveness by the 31st. December 2020, is available in the loan remission request only for FTE discounts. occurring during the period February 15 to April 26, 2020. If the FTE reduction occurred after April 26, then this specific safe harbor does not apply. If the borrower maintained or increased their FTEs during the period February 15 to April 26, 2020, but nevertheless had fewer average FTEs during the period covered than during the selected reference period, then the borrower can, based on the Flexibility Act, try to avoid a proportional reduction by stating in good faith either (1) that it was not able to rehire laid-off employees and hire qualified replacements, or (2) that it was not able to function at its previous level due to the must comply with certain specific security requirements of the federal government.

This is stated in Safe Harbor 1 for FTE Reduction and may mitigate or eliminate any discount reduction, but it is not automatic under Safe Harbor 2. PPP loan forgiveness request. To ensure that the Safe Harbor 1 ETP reduction exempts loan cancellation reductions resulting from employee layoffs or reduced hours, borrowers may wish to submit documents with the loan cancellation request showing this. which follows: (1) the employee was rehired for the same salary before December 31, 2020; (2) the Borrower has made a good faith written offer to rehire that employee (or, if applicable, to reinstate that employee’s reduced hours) during the covered pay period; (3) the offer was for the same salary or wages earned and the same number of hours worked by that employee during the last pay period prior to termination or reduction of hours; (4) the offer was rejected by this employee; (5) the borrower has notified the relevant state unemployment insurance office of the employee’s rejected re-employment offer within 30 days of the employee’s rejection of the offer; or (6) the employee has been terminated for cause, has voluntarily resigned or has voluntarily requested a planned reduction.

On June 17, 2020, the SBA also released a new EZ PPP loan forgiveness request (the “EZ Loan Discount Request”). Borrowers eligible for the new EZ Loan Forgiveness Application do not need to provide detailed information regarding employees, cash compensation, and hours worked. The EZ Loan Forgiveness Application is simpler than the Loan Forgiveness Application and is designed to be used only by self-employed individuals or borrowers who have not reduced their employees’ pay by more than 25%.

PPP loan maturity and postponement

The revised rules extend the maturity date of PPP from two years to five years for PPP loans disbursed after June 5, 2020. Lenders are allowed to extend the maturity date of loans disbursed before June 5, 2020. The SBA now allows borrowers deferral of all principal and interest payments if they submit their loan waiver requests to their lenders within 10 months of the applicable covered period. Failure to request a rebate within the allotted time will require borrowers to start making payments to their lenders.

Revised PPP loan application and lender application

On June 24, 2020, the SBA released a Revised PPP loan application (the “Loan Application”) and Revised PPP loan application.

On June 12, 2020, the first provisional rule was amended in the Interim rule on further revisions of eligibility for the first interim rule, and the look-back period for potential borrowers has been reduced from five years to one year to determine the eligibility of applicants, or owners of applicants, who, for non-financial crimes, have (1) been convicted, (2) have pleaded guilty, (3) pleaded nolo pretendere, or (4) has been placed on some form of parole or probation (including pretrial probation). The time limit remains five years for crimes involving fraud, bribery, embezzlement, or misrepresentation in a loan application or request for federal financial assistance.

The application also eliminates pre-trial diversion status as a criterion affecting eligibility. The criminal history of potential borrowers for non-financial crimes will only be considered during the 12 months prior to the PPP loan application. Potential borrowers who are currently on probation or parole still do not have the right to apply. The Revised PPP loan application consistent with these changes.

Warning: All PPP loan applications must be June 30, 2020, and all applicants should work with their lender to ensure that the application is submitted prior to June 30, 2020.

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