Latest SBA PPP Loan Forgiveness FAQs Provide Insight, Though Questions Remain

On August 4, 2020, the Small Business Administration (SBA) released FAQs on PPP Loan Forgiveness. The FAQs supplement the interim final rules issued earlier this year, which still left many borrowers uncertain about loan forgiveness calculations.

While the August 4 FAQs do not answer every remaining question, they do provide valuable insights.

What we know

Timing

• Payroll costs and eligible nonpayroll costs (including eligible business mortgage interest costs, eligible rent costs and eligible utility costs) incurred before but paid during the covered period are eligible for forgiveness. This seemed to be the situation based on earlier guidance, but some borrowers wondered if the SBA would add restrictions. Fortunately for borrowers, the answers in the FAQs are relatively straightforward regarding payroll and eligible nonpayroll costs incurred before but paid during the covered period. 
• Payroll costs and eligible nonpayroll costs incurred during but paid immediately after the covered period (i.e., before the next regular payroll date or billing date) are eligible for forgiveness. Because of this and the above-described inclusion of costs incurred before but paid during the covered period, borrowers may be able to include more than 8 or 24 weeks of expenses to be included in the forgiveness calculation. 
• The FAQs provide flexibility to permit borrowers to obtain forgiveness of group health insurance premiums paid later than the first payroll date following the covered period (notwithstanding language in the forgiveness application that suggests payroll costs must be paid by that deadline to qualify for forgiveness). Specifically, the FAQs state, “If a borrower has an insured group health plan, insurance premiums paid or incurred during the Covered Period or Alternative Payroll Covered Period qualify as ‘payroll costs,’ as long as the premiums are paid during the applicable period or by the next premium due date after the end of the applicable period.” (Emphasis added). 
• Prepayments of group health benefits do not appear to qualify for forgiveness. Per the FAQs, “Forgiveness is not provided for expenses for group health benefits accelerated from periods outside the Covered Period or Alternative Payroll Covered Period.”
• Prepayments of employer contributions for retirement benefits also do not appear to be eligible for forgiveness, based on the following statement in the FAQs: “Forgiveness is not provided for employer contributions for retirement benefits accelerated from periods outside the Covered Period or Alternative Covered Period.”

Allowable costs

• Interest paid on a debt that is secured by real or personal property of the business (including interest paid on an auto loan) is eligible for loan forgiveness. Note, however, that interest on unsecured credit is ineligible for loan forgiveness.
• The FAQs clarify that the “transportation utility fees” that a small number of state and local governments assess as a means of financing transportation infrastructure are an allowable cost for purposes of calculating loan forgiveness. Unfortunately, that clarification regarding the meaning of the phrase “payment for a service for the distribution of … transportation” in the CARES Act raises doubt about the continued vitality of a reference in an earlier IFR to “gas you use driving your business vehicle” qualifying for forgiveness as a “business utility payment.”

Forgiveness reductions

• For purposes of calculating any loan forgiveness reduction triggered by a salary or wage reduction greater than 25%, the FAQs expressly provide that “the borrower should only take into account decreases in salaries or wages.” Thus, it seems clear that reductions in forms of compensation (e.g., bonuses, commissions and tips) do not need to be considered when calculating any such forgiveness reduction.

Questions that remain

There are still many unanswered questions pertaining to the PPP loan forgiveness process, including how full-time equivalent employee deductions will work for borrowers who elect to apply for forgiveness before the end of the covered period (as permitted by a June 22 Interim Final Rule) and how the SBA will review economic necessity for loans over $2 million. If history serves, however, the SBA will continue to issue further guidance. Stay tuned for further developments.

How we can help

CLA can help you navigate PPP forgiveness. Whether you need just a short consultation or full support, we have a forgiveness package option for you.

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