The SBA Will Allow PPP Borrowers to Apply Early for Loan Forgiveness

Borrowers who received a Paycheck Protection Program (PPP) loan can apply for loan forgiveness before their covered period expires, according to new guidance released by the Small Business Administration (SBA) this week. Previous guidance gave new PPP borrowers 24 weeks to use their PPP loans and gave borrowers with PPP loans funded prior to June 5th the option of using all of their PPP loan during their initial eight-week time frame or extending it over 24 weeks. Those borrowers who had worked to spend most of their loan within the original eight-week time frame were unsure whether they could apply for loan forgiveness once their funds were expended or had to wait until the end of the extended covered period. This week’s guidance provides borrowers the flexibility to apply for loan forgiveness before the end of their covered period.

This flexibility has a drawback for borrowers who reduced employee salaries/wages by more than 25% and planned to restore them by December 31. By applying early, borrowers will forfeit that safe harbor provision and would have to use the salary/wage rates effective on the date they apply for forgiveness as the basis for calculating potential forgiveness, even if the salaries/wages have not been fully restored on that date. Applying early would lock in the salary/wage rate at the time of loan forgiveness application and apply that rate throughout the entire 24-week covered period, even if salaries/wages are increased between the application date and the end of the covered period. Also, it is not clear if the early application date will impact when borrowers count their full-time equivalent (FTE) employees to compare that number to their pre-PPP loan counts. We believe applicants for early forgiveness would base their FTE count on the covered period for which forgiveness is requested, even if it is fewer than 24 weeks. The SBA guidance did clarify that a reduction in FTEs during the covered period as a result of the business’ indirect compliance with the government’s COVID-19-related health and safety requirements would NOT adversely affect the borrower’s loan forgiveness amount.  For example, if a business was closed due to state-required shelter-in-place mandates, the reduction in FTEs related to such would allow them to qualify for the safe harbor.

Another unanswered question is whether the $100,000 annualized cap on employee compensation, which is $46,154 for the 24-week covered period, would be further prorated to account for a shortened covered period. 

The new SBA guidance provided additional clarification on compensation caps for C-corporation owner-employees, partners, members and the self-employed. To qualify for loan forgiveness, compensation for owner-employees, partners, etc. cannot exceed $15,385 for eight-week covered periods. For 24-week covered periods, the cap is 1/12 of 2.5 times their annual compensation in 2019, or $20,833, whichever is lower, “in total across all businesses.” This indicates that borrowers need to aggregate all compensation received by owner-employees across all businesses they are associated with when applying the cap. For partners, member, and the self-employed,  retirement and health care contributions are included within these compensation caps. For C-corporation owner-employees, that is not the case. For owner-employees of S-corporations, the cap includes employer-paid health insurance contributions, but not retirement contributions made on their behalf. 

The SBA and Treasury Department have reversed a prior statement and now plans to publicly disclose the names, addresses, NAICS codes, jobs supported and other information of businesses and nonprofit organizations with PPP loans of more than $150,000.

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Contact WBL today to discuss your questions about the latest guidance on PPP Loans and forgiveness. Check out WBL’s COVID-19 Business Support page for links to loan forgiveness applications and application instructions, blog articles, presentations and more resources to help your business during these uncertain times.

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