On May 22, 2020, the Small Business Administration (SBA) and the Department of the Treasury (Treasury) issued two Interim Final Rules related to the Paycheck Protection Program (PPP): 1) an Interim Final Rule on loan forgiveness, which clarifies certain forgiveness and calculation issues, and 2) an Interim Final Rule on SBA loan review procedures. Each of these rules supplements earlier guidance provided by the SBA and Treasury and also clarifies certain items required by the PPP loan forgiveness application released by the SBA and Treasury on May 15, 2020.
The rule clarifies that the applicable eight-week covered period during which payroll costs are eligible for forgiveness may begin either:
Regardless of which covered period applies, payroll costs incurred during the period are eligible for forgiveness if they are paid on or before the next regular payroll date, even if that date occurs after the end of the covered period.
An open issue is whether payroll costs incurred before the start of the covered period but not paid until after the start of the covered period are eligible for forgiveness, but the guidance is clear that nonpayrolll costs are eligible for forgiveness if they are paid during the covered period, even if the costs were incurred prior to the covered period. In addition, nonpayroll costs are eligible for forgiveness if they are incurred during the covered period but paid on or before the next regular billing date, even if that date is outside the covered period. The rule reaffirms that nonpayroll costs cannot exceed 25% of the forgiven amount.
The new rule also clarifies that hazard pay and bonuses paid to employees during the covered period are eligible for forgiveness so long as the employees’ total compensation including hazard pay and bonuses does not exceed $15,385 during the covered period ($100,000 on an annualized basis).
Finally, the new rule includes additional guidance on reductions to the forgivable amount based on decreases in headcount or salaries:
Lenders are required to review a borrower’s application for PPP loan forgiveness and to notify the SBA of its decision regarding forgiveness within 60 days of receiving the application from the borrower. The SBA then has 90 days to review the lender’s decision and remit the appropriate forgiveness amount to the lender. Notwithstanding that initial 90-day period, the SBA is permitted to review PPP loans of any size at any time in its discretion, and borrowers are required to retain backup documentation for six years after the date the loan is forgiven or repaid in full.
If the SBA determines that a borrower is ineligible for all or a portion of a PPP loan, or ineligible for forgiveness of all or a portion of the proceeds, the borrower may appeal that decision. The SBA will issue separate guidance addressing the appeal process at a later time.