Asking for Forgiveness: Paycheck Protection Program (PPP)
Truxton Trust is here to assist our business clients in managing the difficult period we are experiencing. The money loaned through the Paycheck Protection Program is backed by the SBA and is intended to be a no- or low-cost loan to you. The entire amount of the loan, plus accrued interest, has the potential to be forgiven. As a PPP loan recipient, it is important that you closely follow the parameters outlined by the SBA to have your loan forgiven. More guidance on forgiveness is forthcoming. The information below is our current understanding and is subject to change. If and when this information changes, we will communicate it to you. And as always, you may contact your dedicated loan officer for further assistance.
6/17/20 Update: SBA Streamlines Forgiveness Application for Many PPP Borrowers
The SBA released a new three-page streamlined "EZ" loan forgiveness application requiring less documentation and fewer calculations. Form 3508EZ applies to borrowers who meet any one of the following criteria:
- Applied for the PPP loan as self-employed, independent contractor, or sole proprietor with no employees
- Did not reduce salary or wages for any employee by more than 25% and did not reduce the number or hours of their employees (except laid-off employees who refused an offer to return)
- Did not reduce salary or wages for any employee by more than 25% during the covered period and experienced reductions in business activity as a result of health directives related to COVID-19
The SBA also updated the regular forgiveness application, Form 3508 (revised June 16, 2020), to reflect the changes made by the Paycheck Protection Program Flexibility Act of 2020.
While we expect that these forgiveness applications are in their final form, the SBA is not yet prepared to begin processing these applications, so we are still awaiting information and guidance on the submission process. We will continue to keep you informed as we learn more from the SBA and Treasury.
6/5/20 Update: Senate Passes House Bill Easing Restrictions
On Wednesday evening, the Senate passed House bill H.R.7010, the Paycheck Protection Program Flexibility Act of 2020. As we detailed in this past Monday’s email, the bill provides some flexibility on the original legislation and the subsequent SBA rules for forgiveness. It notably extends the 8-week payroll covered period for loan forgiveness to 24 weeks, lowers the required payroll expense portion from 75% of the loan to 60%, and extends the loan maturity period from 2 years to 5 years for new loans.
Key Changes Highlighted
- Extended timeframe to spend PPP loan funds
Businesses have 24 weeks (6 months) or until December 31, 2020, to use the funding secured from the PPP for loan forgiveness (extended from the original 8 weeks).
- Extended timeframe to meet payroll levels for loan forgiveness
Businesses can restore payroll which was reduced during the pandemic through December 31, 2020 (extended from the original June 30 deadline).
- Extended duration of the PPP program
Business can apply for PPP funding through December 31, 2020, although this will be subject to funding. Current data shows about $130 billion remaining for PPP lending.
- Lowered payroll requirement and greater allowance for non-payroll costs
The 75% payroll cost requirement for PPP loan forgiveness is lowered to 60%, allowing 40% of the loan to be applied to other costs as specified by the SBA.
- More flexible repayment
The loan payment deferral period is extended until the SBA renders a forgiveness decision and remits to the lender the amount of forgiveness. Borrowers can apply for forgiveness up to 10 months after the end of their 24-week covered period, and payment deferral for borrowers who do not apply for forgiveness will last 10 months after their covered period ends.
- Extended loan maturity
The minimum loan maturity is extended to 5 years from the original 2-year term on newly originated loans once this measure becomes law. Current borrowers can attempt to extend terms with their lender.
- Forgiveness for borrowers unable to rehire workers
Loan forgiveness will be extended to borrowers that document their inability to rehire workers through the end of the year or if they are unable to resume full business levels due to sanitation and social distancing requirements.
- PPP borrowers allowed to defer payroll tax payments
A CARES Act restriction on PPP borrowers’ payroll tax payment is repealed, allowing payroll tax deferral.
As a reminder, the Loan Forgiveness Application requires you to retain all supporting documentation and proof of use of funds, and make those materials available on request by the SBA. When more information becomes available, we will communicate it to you.
5/28/20 Update: SBA Releases Additional Guidance and House Passes Bill Easing Restrictions
On May 15th, the SBA released the loan forgiveness application which was shared with you all in our last communication. On May 22nd, the SBA released additional comments (an interim final rule) to formalize previous loan forgiveness guidance. On May 28th, the House of Representatives passed a bill, the Paycheck Protection Program Flexibility Act of 2020, easing restrictions. There is still a lot we do not know and are awaiting further clarification. Multiple bills being considered in Congress may change the existing forgiveness rules.
Please find a recap below of the information which has been released but it is subject to change. We will continue to monitor the legislation and update you as information becomes available.
Current rules for getting a PPP Loan converted into a grant include:
- PPP Loans must be used within an 8-week period after securing the Loan.
- 75% of the proceeds must be use on payroll with 25% available to cover approved non-payrolls costs such as rent/utilities.
- Proper documentation (bank statements, tax forms, etc.) must be submitted to the SBA when the borrower is applying for forgiveness.
Proposed changes to rules under House bill passed May 28th:
- Time period to use PPP Loan proceeds is extended from 8 weeks to 24 weeks or December 31, 2020 (which applies to any Loan funded by July 17, 2020).
- The percentage of forgivable spend on non-payroll costs was increased to 40% from 25%. Under the new proposal 60% of the PPP proceeds are required to be spent on payroll with 40% available for other costs.
- Allows payroll tax deferrals even with Loan forgiveness
We understand lack of clarity and delays can be frustrating during these times. We are here for you and will update you again soon.
5/21/20 Update: SBA Updates Guidance
The SBA recently released the PPP Loan Forgiveness Application and Instructions. Truxton Trust encourages its borrowers to read the entire document closely which is available using the link below. Understanding the rules for forgiveness and applying correctly is how a portion of the loan may be ultimately forgiven.
The submission of the PPP Loan Forgiveness Application, PPP Loan Forgiveness Calculation Form, and PPP Schedule A, along with the required documentation, has been estimated by the SBA to take 3 hours, but we expect that to vary widely among borrowers.
A few key points:
- An “Alternative Payroll Covered Period” can be used to align the forgiveness period (“Covered Period”) for payroll expenses, but not other eligible expenses, for companies who pay on biweekly or more frequent basis
- Costs incurred but not paid during the Covered Period may still be eligible for forgiveness
- Full-time equivalent employee (FTEE) and Salary Reduction Calculations will require data on every employee and can be calculated in multiple ways for each borrower, but Safe Harbor provisions still allow for forgiveness if reductions are remedied by June 30, 2020
- FTEE will be calculated based on 40-hour week
We still expect further guidance and clarification from the Treasury and SBA and Congress may vote to change the existing forgiveness rules. We will continue to update you as information becomes available.
5/5/20 Update: Maximizing Loan Forgiveness
What We Know
- The clock for expenses eligible for forgiveness started at date of loan closing ending in 8 weeks. Only expenses paid in this 8-week period are eligible for forgiveness.
- While not confirmed by the SBA, Truxton believes that only cash expenses are eligible. Money must change hands for an expenditure to count for forgiveness.
- 75% or more of the amount requested for forgiveness must represent payroll costs1 spent within the 8-week timeframe.
- No more than 25% of the amount requested for forgiveness may be spent on specific non-payroll costs2 such as mortgage interest, rent, or utilities. No other non-payroll expenses are permitted uses of PPP funds.
- Business may need to adjust the timing of their pay periods to maximize the compensation paid in the 8-week forgiveness period and should explore how to best implement that change within their accounting and payroll systems.3
- Forgiveness metrics will include a measurement (not yet defined) of the number of full-time employee equivalents (FTEEs) compared to pre-pandemic levels. The comparison time frame is either January 1, 2020 to February 29, 2020, or February 15, 2019 to June 30, 2019, whichever generates a lower number of FTEE.4
- Bonuses and additional retirement contributions will count in payroll costs.
- The borrower will need documentation to support agreements in place prior to February 15, 2020, pertaining to leases and utilities.
- Interest on non-mortgage debt incurred before February 15, 2020, is an acceptable use of the loan proceeds but is not eligible for forgiveness.
- Forgiveness for sole proprietorships, self-employed individuals, and single member LLCs have special instructions.1
What We Don't Know
More guidance from the SBA is forthcoming. We currently do not know:
- The calculations associated with forgiveness reductions if employee and compensation levels are not maintained at pre-pandemic levels.
- The calculations associated with levels for employee and payroll compensation during the 8-week period (weekly averages, daily averages, overall amounts, etc.).
- Forgiveness arrangements for loan amounts associated with ownership compensation of partnerships and multi-member LLCs (as designated on 2019 Form 1065 Schedule Ks).
What the SBA Expects from You
To ease the process and paperwork required for forgiveness, you can now:
- Document all uses of the PPP loan proceeds – the limitations on acceptable use apply even beyond the 8-week forgiveness period. Documentation is essential. To apply for forgiveness, you will submit documentation to Truxton Trust proving that you used funds for allowable purposes and in the required amounts.
- Gather documentation showing agreements in place before February 15, 2020, for eligible non-payroll expenses (e.g. utility invoices, internet and communication agreements, mortgage or lease documentation, etc.).
- Get back to employment and salary levels prior to February 15, 2020.
What You Can Expect from Us
We are here to help. As more information is released from the SBA, we can help you navigate the information to aid and assist in keeping this loan no- or low-cost to you. Please expect further communication from us. As always, reach out to your dedicated officer should you have further questions or concerns.