Bruce Claassen

August 5, 2020

On Tuesday, The U.S. Small Business Administration (SBA) and the Treasury Department released 23 new frequently asked questions (FAQ's) that provide guidance related to the forgiveness of Paycheck Protection Program loans.

 

The FAQs, which can be found in a new 10-page document here, are divided into four sections.  Each section addresses different aspects of the process and calculations that borrowers should use to determine how much of their loan qualifies for forgiveness. 

 

Here is a general summary of each section:

• General loan forgiveness: This section clarifies that sole proprietors, independent contractors, and self-employed individuals who had no employees at the time of the PPP loan application and did not include any employee salaries in the computation of average monthly payroll in the Borrower Application Form automatically qualify to use the simpler PPP Loan Forgiveness Application Form 3508EZ.

 

• Loan forgiveness payroll costs: This section addresses how to determine how much owner compensation is eligible for loan forgiveness. Examples are provided for owners of C and S corporations, self-employed Schedule C (or Schedule F) filers, general partners, and LLC owners. It also provides the definition for an owner-employee.  An owner-employee is someone who is both an owner and an employee of a C corporation. This was referred to in the loan forgiveness application but to this point had not been defined.
  This section also addresses partial pay periods, group health care benefits,  payroll costs that were incurred, or paid outside of the eight-week or 24-week covered periods.

 

• Loan forgiveness nonpayroll costs: This section clarifies that payments of transportation utility fees assessed by state and local governments are eligible for loan forgiveness. It also addresses questions related to nonpayroll costs that were incurred or paid outside of the eight-week or 24-week covered periods and clarifies that the Alternative Payroll Covered Period for payroll costs does not apply to nonpayroll costs.

 

• Loan forgiveness reductions: This section explains how borrowers should calculate a reduction in loan forgiveness that arises from reductions in employee salary or hourly wage.

 

While these FAQs have addressed a number of the existing questions, there are still some gray areas, and additional guidance is still needed.  An important one is how FTE reductions will work if applying for forgiveness before the end of the covered period. 

 

Congress is currently debating a follow-up to PPP that appears likely to provide more targeted assistance to small businesses.  At this point, the recommended strategy seems to be wait-and-see.  It appears that applying for forgiveness early could hurt you, so unless new guidance is issued, it may be advantageous to wait until the end of the 24 week period is over to apply.

 

If you have questions or concerns about this process, our associates are available to assist you.