The Small Business Administration (SBA) and the Department of the Treasury continue to provide updates and clarification on the rules surrounding the Paycheck Protection Program (PPP). As of today, the SBA is still not accepting applications for forgiveness. For more information about the SBA Paycheck Protection Program, please visit https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program.
On May 15th, the SBA, in consultation with the Department of the Treasury, released a Loan Forgiveness Application that PPP borrowers will utilize when applying for loan forgiveness. The application offers details on how to apply for forgiveness, and FAQs provided by the SBA offer additional guidance.
Additional rules and guidelines are expected and once the Bank has been given direction on how to submit forgiveness requests, we plan to start accepting applications from borrowers. Peoples Bank will use a streamlined system for initiating PPP loan forgiveness for customers. This system will help you calculate the amount of forgiveness you are eligible for and allow for electronic signing and completion of the required forms. When this system is complete, we will email instructions to customers and include a link on our website. Please use this system to initiate your forgiveness request when it becomes available.
Customers who have received a Paycheck Protection Program loan should ensure they understand which expenses are eligible for forgiveness and are diligently documenting the expenses as evidence of how the funds are used. The expenses should be tracked for a 24-week period (not to extend beyond 12/31/2020), which begins the date the loan proceeds are disbursed to the customer. Existing Paycheck Protection Program borrowers may continue to elect an eight-week period if they choose.
Loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities. Not more than 40% of the forgiven amount may be for non-payroll costs.
The SBA released forgiveness application Form 3508 and the simplified Form 3508EZ. Form 3508EZ applies to borrowers who meet any one of these three criteria:
- Applied for the PPP loan as self-employed, an independent contractor, or a 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 (excepting 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 Paycheck Protection Program provides small businesses with funds to pay up to 24-weeks of payroll costs (not to extend beyond 12/31/2020), including benefits. Funds can also be used to pay interest on mortgages, rent, and utilities.
- Funds are provided in the form of loans that may be fully forgiven when used for payroll costs, interest on mortgages, rent, and utilities (at least 60% of the forgiven amount must be used for payroll).
- All loans issued on or before June 4, 2020, will have a two year term (6-months deferred interest with any balance not forgiven amortized over 18-months). All loans issued after June 4, 2020, will have a five year term (6-months deferred interest with any balance not forgiven amortized over remaining 54-months).
- Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease.
On June 22, the SBA issued revisions to the Loan Forgiveness Interim Final Rule and SBA Loan Review Procedures Interim Final Rule. The guidance clarified the Safe Harbor FTE exemption as it relates to reductions in staff related to mandated closures or social distancing requirements.
"…borrowers that can certify that they have documented in good faith that their reduction in business activity during the covered period stems directly or indirectly from compliance with such COVID Requirements or Guidance are exempt from any reduction in their forgiveness amount stemming from a reduction in FTE employees during the covered period. Such documentation must include copies of applicable COVID Requirements or Guidance for each business location…"
If all funds have been used and you wish to apply for forgiveness, the Bank can accept forgiveness applications even if the 8 or 24-week covered period has not been completed (i.e., if you have used all PPP funds on eligible expenses in 16 weeks, borrowers can apply at that time instead of having to wait until the 24-week covered period is over to apply).
The SBA clarified that partial loan forgiveness will also be available under the 60% threshold. Specifically, if a borrower uses less than 60% of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60% of the loan forgiveness amount having been used for payroll costs. Non-payroll expenses may be up to 40% of the forgiven amount.
The guidance further clarified that no payments are required from the borrower until either the loan forgiveness application period has ended or a decision on the forgiveness amount has been determined. Borrowers have up to 10 months after their cover period is over to apply for forgiveness with the Bank, however, we encourage borrowers to apply as soon as they are ready and after Peoples Bank begins accepting applications. Note: this is different than the initial Promissory Note repayment terms you signed and may require a signed agreement with Peoples Bank to alter or change the agreed upon repayment terms.