Recently, the SBA released new guidelines for the ever-evolving Paycheck Protection Program (P3). As we recently wrote about, on June 5, 2020, borrowers received good news, as the PPP Flexibility Law extended the period of use of loan funds from 8 to 24 weeks, reduced the amount of the loan to be tied to the payroll from 75% to 60% in order to obtain maximum pardon, increased the length of time an employer must restore FTE numbers and wages, and widened the safe harbor for the same.
The updates made by the SBA to the Third and Sixth Interim Final Rules provide clarity on some of these changes. Borrowers who opt for a covered period of 24 weeks or (in the case of borrowers who have obtained loans as of June 5, 2020, automatically benefit from a covered period of 24 weeks), will be able to provide more mass salary per employee. Following the tripling of the length of the period covered by the Flexibility Act, the final rule confirms that wage costs, including wages, salaries and tips, up to $ 100,000 of annualized wages per employee, can be provided for the equivalent of 24 weeks, for a maximum of $ 46,154. per employee. Covered benefits, including health care expenses, pension contributions, and state payroll taxes imposed on employees paid by the employer (such as unemployment insurance premiums), are included for employees , but not for owners.
The update also addresses the differentiation between owners and employees in calculating out-of-pocket labor costs. Owners are counted separately, and are subject to different ceilings, depending on whether they are in a covered period of 8 or 24 weeks:
“The Administrator, in consultation with the Secretary, has determined that it is appropriate to limit the Replacement Owner’s Compensation exemption for individuals with self-employment income who file a Schedule C or F to eight weeks. (8/52) of 2019 net income (up to $ 15,385) for a covered period of eight weeks or 2.5 months (2.5 / 12) of 2019 net income (up to $ 20,833) for a 24 week period covered per owner in total in all businesses.
The SBA says this is in keeping with “the structure of the CARES Act and its general purpose of keeping workers paid, and will prevent deals that Congress did not anticipate.”
Revised application, new version “EZ”
- are self-employed and have no employees; or
- have not reduced the wages or salaries of their employees by more than 25% and have not reduced the number or hours of their employees; or
- have experienced reductions in business activity due to health guidelines related to COVID-19 and have not reduced their employees’ wages or salaries by more than 25%.
Fortunately, the EZ app is a two-page document, with fewer calculations and less documentation. Borrowers who might qualify to take advantage of this streamlined process should review the list of certifications on page 2 of the application to ensure they are eligible.
Pardon based on duration of less than 24 weeks
As noted earlier, borrowers do not need to meet the 60/40 ratio of salary and non-salary expenses to qualify for a pardon; on the contrary, forgiveness will simply be reduced. In recent days, borrowers have questioned whether the same flexibility could be found in tallying FTEs when they had spent their PPP loan proceeds in less than 24 weeks. Does he have to wait until the end of the 24 week covered period to request remission, or does he have to report his FTE count at the end of his 24 week mark? While the interim final rule is far from clear on the matter, I wrote to Patrick Piorkowski, a lender relations specialist at the SBA’s Illinois district office. Piorkowski replied, “You can choose to ask for forgiveness at the time you think you are eligible. You don’t need to wait 24 weeks. We anticipate that this issue will be addressed in future guidance.
EIDL loans are again available for non-farm businesses
Finally, since last month, all businesses except agriculture have been barred from applying for Economic Disaster Lending (EIDL). The ASB announced it week that it processes EIDL applications submitted on its site by April 15, 2020, and also reaffirmed that small businesses can re-apply for the EIDL advance of up to $ 1,000 per employee (including independent contractors and workers in concert) – an advance that does not need to be repaid whether or not your loan is approved. Unlike the PPP, which (for now) will only receive applications until June 30, 2020, the EIDL program will run until December 31, 2020.