PPP Loan Waiver – What Do We Know? | Wendel Rosen LLP

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On May 22, 2020, the Treasury and Small Business Administration (SBA) released new guidelines for the Paycheck Protection Program (PPP).[1] These guidelines cover the cancellation of PPP loans, SBA loan review procedures, and the responsibilities of the borrower and lender under the PPP. Below is a summary of the new Interim Final Rules (IFR).

Loan remission

To obtain a loan forgiveness, a borrower must complete and submit the Loan forgiveness request (SBA Form 3508 or equivalent lender) to the lender who approved their PPP loan. The lender then has 60 days to make a decision to the SBA. Within 90 days of the date the lender makes its decision to the SBA, the SBA, subject to any review by the SBA of the loan or loan application, will remit the appropriate amount of remission to the lender, plus the accrued interest until the date of payment.[2]

Salary costs

The IFR reaffirms that in general, salary costs paid or incurred during the period covered, that is, the eight weeks following the disbursement of PPP funds, are eligible for a rebate. Borrowers can also use an “Alternative Payroll Coverage Period” as described in the Loan Cancellation Request Instructions, in which the borrower can choose to use a coverage period beginning on the first day of the first cycle. borrower’s payroll.

The IFR also confirms that salary costs are incurred on the day the employee’s salary is earned. If employees are off duty and are still on a borrower’s payroll, salary costs are incurred based on the schedule established by the borrower (i.e. each day the employee would have done a job).

The new directive clarifies that employee bonuses and risk bonuses are eligible for salary costs, provided that the employee’s total compensation does not exceed $ 100,000 / year. In addition, salaries paid to employees on leave during the period covered are eligible for forgiveness.

The guidelines reaffirm the limits on the amount of loan forgiveness available to owner-employees and the personal compensation of the self-employed. Owner-employees and the self-employed are limited to a “salary compensation” of no more than the lesser of 8/52 of 2019 compensation or $ 15,385 per person. Owner-employees are further capped by the amount of their 2019 cash compensation and employer-paid pension and health care contributions. Annex C filers are capped by the amount of their owner’s compensation requirement, calculated on the basis of 2019 net profit. General partners are capped by the amount of their 2019 net income from self-employment, subject to of certain reductions.

Non-salary costs

The IFR reaffirms that eligible non-salary costs cannot exceed 25% of the loan forgiveness amount (the remaining 75% to be used for salary expenses).[3]

The guidelines reiterate that non-salary costs must be paid during the covered period or incurred during the covered period and paid no later than the next regular invoice date, even if the invoice date is later than the covered period. If a borrower’s non-salary expenses include the covered and uncovered period and are paid after the covered period, the borrower may request a partial remission of expenses incurred during the covered period but paid on the next regular billing date. For example, if a borrower’s “covered period” ends on July 26 and their electricity expenses for July are not paid by August 10, the borrower’s electricity expenses for July 1-2 July are refundable.

Finally, the IFR specifies that the interest payments on mortgage bonds are not eligible for loan forgiveness.

Reductions in loan forgiveness amount

Downsizing

The IFR confirms that borrowers will not be penalized for voluntary resignations and schedule reductions or terminations for cause that occur during the period covered or the period covered by the alternative payroll. Additionally, borrowers will not be penalized if they offer to rehire an employee for the same salary and number of hours and the employee declines the offer. In this case, the borrower must document the request and the refusal in writing and the borrower must notify the relevant state unemployment insurance office within 30 days of the employee’s rejection of the offer.

Salary / salary cuts

The IFR confirms that the calculation of 25% reduction in salary / wages (for employees who were not paid more than the annualized equivalent of $ 100,000 in any 2019 pay period) is made on a basis per employee. The reduction in salary / wages applies only to the decrease in wages and salaries of employees, it is not attributable to the reduction in FTEs.

Remedies for downsizing and salary / wages

The reinstatement allowance applies only to the elimination, before June 30, 2020, of FTEs and only to salary reductions that occurred between February 15, 2020 and April 26, 2020.

Loan review

SBA can review all PPP loans, at all time at its discretion. During this review, the SBA can determine whether a borrower correctly calculated the loan amount, correctly used the loan proceeds, and / or is entitled to the requested loan forgiveness amount.

Previously, in its FAQ # 46, the SBA created a safe haven for PPP loans under $ 2 million. The new guidelines make it clear that the SBA can undertake a review of any loan at any time at the discretion of the SBA. Therefore, it is imperative that all borrowers keep PPP documents for at least six years after the date the loan is canceled or paid off in full. The SBA and the SBA Inspector General may request to view this documentation.

If the loan documents submitted to the SBA by the lender indicate that the borrower may be ineligible for a PPP loan or may be ineligible to receive the loan amount or the loan cancellation amount claimed by the borrower, the SBA will ask the lender to contact the borrower in writing to request additional information. The SBA may also request information directly from the borrower. Failure to respond to the SBA’s request for information may result in a decision that the borrower is not eligible for the rebate or the loan itself.

If the SBA determines that a borrower is not eligible for the PPP loan, the SBA will order the lender to deny the loan cancellation. If the SBA determines that the borrower does not qualify for the loan amount or the loan forgiveness amount claimed by the borrower, the SBA will order the lender to deny the loan forgiveness request in whole or in part. In addition, the SBA may seek repayment of the outstanding balance of the PPP loan or pursue other available remedies.

A borrower can appeal the decision of the SBA that the borrower is ineligible for a PPP loan or ineligible for the loan amount or the loan cancellation amount claimed by the borrower.[4]

Loan forgiveness process for lenders

The IFR states that lenders must confirm receipt of the required documentation to verify salary and non-salary costs. Lenders must also confirm loan forgiveness calculations made by borrowers, although the accuracy of the calculations remains the responsibility of the borrower. Lenders are only required to provide a “good faith, timely review of the borrower’s calculations and supporting documentation.”

The level of control applied to these calculations will depend on the reliability of the payroll records. For example, payroll reported by a recognized payroll provider will require minimal review, compared to the more in-depth review that will be required for payroll from an unrecognized source.

If a lender makes a decision approving the loan forgiveness request, it must submit the borrower’s PPP loan forgiveness calculation form to the SBA; (2) PPP Annex A; and (3) the PPP borrower demographic information form (if submitted by the borrower). If the lender determines that the borrower is not entitled to a discount of any amount, the lender must justify the denial and submit the aforementioned forms to the SBA.[5] The lender must also notify the borrower in writing that the denial has been issued to the SBA. A borrower can ask the SBA to review the lender’s decision, this must be done within 90 days of receiving a notice from the lender.

If the SBA has denied the loan forgiveness request, the borrower may ask the lender to reconsider the borrower’s loan forgiveness request, unless the SBA has determined that the borrower is ineligible. to a loan in general.

Finally, the SBA may begin a review of “any PPP loan of any size at any time at the discretion of the SBA”. If the SBA decides to review a PPP loan, it will notify the lender in writing and the lender must notify the borrower in writing within five business days of receipt.


[1] See the new provisional final rules (IFR) here and here.

[2] The general loan forgiveness process described in this paragraph applies only to loan forgiveness requests that are not reviewed by the SBA prior to the lender’s decision on the forgiveness request.

[3] The US House on Thursday approved legislation to make it easier for borrowers to qualify for loan cancellation. The House bill, called the Paycheck Protection Flexibility Act, HR 7010, extends the time PPP recipients have to spend their funds from eight weeks to 24 weeks, and reduces the share of PPP funds that they have to spend their funds to 60% from 75%. borrowers must spend on salary costs to be eligible for full loan forgiveness.

[4] The SBA intends to issue a separate interim final rule on this process.

[5] SBA reserves the right to review the decision of the lender at its sole discretion.

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