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Updates and Revisions to PPP Loan Forgiveness – File Early, Reduced Business Safe Harbor

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They say change is life's only constant, and Treasury, the SBA, and Congress have driven that point home over the past couple months.  Late on June 22, 2020, Treasury and the SBA posted an updated interim final rule concerning forgiveness, making updates and adding explanations for changes made by the PPP Flexibility Act Congress recently passed, and adding some further explanations for the updated loan forgiveness applications that were posted on June 16, 2020.  Here are the application and instructions and the new EZ application and instructions.

So, what’s new?  The interim final rule is 34 pages long, so there’s a decent amount of information in there, but because we love you, we’ve condensed it down into these key takeaways.  Also, a lot of it is just officially changing dates and covered period wording in previous rules to December 31, 2020 or 24-weeks, etc. so basic changes.  If you want further details check out the link above or reach out to us to discuss further.

  • You can file a forgiveness application before the 24-weeks have passed.  This was one of the big questions when the 24-weeks was introduced.  Did you have to wait the entire 24-weeks, or could you file early once you used all the funds?  This update states that you can file early, so if you used all the funds after 12-weeks you can submit a forgiveness application then.  The only possible drawback is related to the penalty for reducing salaries more than 25%.  If you did, you have to use 24 full weeks of that reduction as your penalty, not just the reduction during the time before you filed (say 12-weeks keeping with the previous example).

  • Discusses caps for owner-employees, which are 8/52 of 2019 compensation (max of $15,385) if you choose 8-weeks or 2.5/12 of 2019 compensation (max of $20,833).  It states C-Corporation owner employees are capped based on 2019 cash compensation, retirement, and health insurance contributions.  S-Corporation owner employees are based on just 2019 cash compensation and retirement contributions, but not health insurance because they should already be in their cash compensation.  There are also further examples concerning Schedule C and F filers, general partners, etc.

  • Discusses the following safe harbors:

    • an inability to rehire individuals who were employees of the eligible recipient on February 15, 2020; and

    • an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020; or

      • These two are a little different than the previous rehire exemption, but as the interim final rule explains they are very similar and the requirements for these two are pretty much the same as the rehire exemption concerning documentation.

    • is able to document an inability to return to the same level of business activity as such business was operating at before February 15, 2020, due to compliance with requirements established or guidance issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration during the period beginning on March 1, 2020, and ending December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19.

      • This one is confusing.  The interim final rule has an example in it, but it doesn’t add a lot of clarity.  The example is a beauty supply store that has online sales and a physical store location.  The store is shut down in March 2020 because it is a non-essential business and CDC guidance lead to the shutdown.  The online sales still continue.  So business is reduced but not completely gone.  However, the example doesn’t say if the physical location ever re-opened, how long it was shut down, etc.  Based on your interpretation of what this interim final rule says and the example, it appears that if you had some sort of decline in business activity due to shutdowns or restrictions then this safe harbor would apply.  But what if you own a construction company and the job owner decided to shut down the job site, but the state or local government didn’t require them to do so?  This happened with some of our clients, so their business activity dropped and some of those jobs still haven’t restarted, but it doesn’t seem like that would qualify for this.

      • We hope there’s some guidance on how long the reduction in business activity must be.  Is it a week?  Is it the entire period of time you had the PPP loan?

      • Something else to consider is that the interim final rule says you need to submit documentation of the COVID requirements or Guidance, so for example the order from Ohio about what businesses had to be shut down or operate at reduced capacity.

      • It also says you have to submit “relevant borrower financial records” but doesn’t say what those are.  We would assume they would need to see monthly financials or something showing the sales and profit levels before February 15, 2020 and then after to show you were impacted but doesn’t state the time frame they would want.  Ideally there will be more clarification on what that documentation requirement means.

      • The interim final rule does clarify that state and local government shutdown orders count, because they are based in part on guidance from the three federal agencies mentioned in the law.  So indirect compliance counts.

Overall this is a relatively helpful interim final rule that answers some questions that everyone had.  But you can probably tell from the summary above the biggest unknown at this point is how the reduced business safe harbor is going to work and what you need to submit to support it.  If additional guidance or a better example is issued, we will update everyone.

If you want more specifics on any of these items or want to discuss how they may apply to your situation or would like a second set of eyes to review your forgiveness calculation and application, please contact us.

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