The SBA Issues Updated PPP Loan Forgiveness FAQs

By Jason Patterson and Michael Warner - Franczek P.C.

August 10, 2020

The Small Business Administration (SBA) recently issued a new set of Frequently Asked Questions (FAQs) related to issues borrowers are facing as they apply for loan forgiveness under the Paycheck Protection Program (PPP). Most notably, the FAQs aid borrowers in determining which costs qualify and when they must be incurred in order to qualify for forgiveness.  Although guidance on these issues are set forth in the SBA’s various interim rules and in the subsequent PPP Flexibility Act, the FAQs are organized conveniently by topic and provide useful examples for borrowers. Here are a few highlights:

-- Previously, it was unclear whether borrowers would need to begin making loan repayments while a loan forgiveness application was pending. Generally, the FAQs clarifies that as long as borrowers submit their loan application within 10 months of their covered loan period, they will not be responsible for making payments during that time. However, if part or all of the loan is not forgiven, the borrower will be responsible for the interest that will accrue on any unforgiven amount from the date of the disbursement of the loan.
-- Borrowers struggled to determine the timing on when they had to incur and/or pay certain payroll and nonpayroll costs in order for them to be eligible for loan forgiveness. The FAQs clarify that both payroll and nonpayroll costs incurred prior to but paid during the covered loan period are eligible for loan forgiveness. Similarly, both payroll and nonpayroll costs incurred during the covered loan period, but paid after the covered period are eligible for forgiveness, so long as they are paid on the next payroll date (for payroll costs) or billing cycle (for nonpayroll costs).
-- The FAQs includes a helpful reminder that “other compensation” for purposes of loan forgiveness includes tips, lost commissions, bonuses and hazard pay up to $100,000 on an annualized basis.
-- The FAQ clarifies that only employer contributions, including premiums, towards group health care benefits paid or incurred during the covered period are eligible for loan forgiveness. Premiums incurred during the covered period but paid after the covered period are still eligible for loan forgiveness so long as they are paid by the next due date after the covered period. Expenses for group health care paid by employees are not eligible for forgiveness. Also, health care expenses accelerated from periods outside the covered period are not eligible for loan forgiveness.
-- The FAQs clarify that only employer contributions for employee retirement benefits paid or incurred during the covered period are eligible for loan forgiveness. Expenses for employee retirement benefits paid by employees are not eligible for forgiveness. Also, retirement expenses accelerated from periods outside the covered period are not eligible for loan forgiveness.
-- The FAQs provides a reminder of previous guidance regarding how a reduction in workforce or wages potentially impact loan forgiveness amounts. In sum, borrowers can exclude any reduction in FTE employees if the employer can demonstrate: 1) an inability to rehire individuals who were employees as of February 15, 2020; and 2) an inability to hire similarly qualified employees by December 31, 2020. Previously, borrower’s loan forgiveness amounts were reduced if they could not restore their staffing levels.

As Congress continues its negotiations regarding the next round of Coronavirus relief, we expect additional guidance from the SBA and Treasury Department on the PPP. As always, we will continue to track developments and provide updates as they occur.