COVID-19 Relief Law - PPP forgiveness: no rush + tips
Although forgiveness for Paycheck Protection Program (PPP) loans is a foremost topic on the minds of borrowers and the attorneys who advise them, experts are saying borrowers should not rush to apply for forgiveness.
Long-expected FAQs expected to clarify many PPP-related issues are still awaited from the U.S. Small Business Administration ("SBA") and Treasury. In addition, the loan forgiveness application has not been updated to reflect the recent five-week extension of the program’s deadline to Aug. 8.
Even if the FAQs do come out, the SBA issued a procedural notice Thursday that indicated it would not begin accepting PPP forgiveness submissions from lenders until a new software-as-a-service platform currently under development goes live Aug. 10. The SBA said the launch could be delayed if new legislation changes the forgiveness process in ways that require changes to the new platform.
The Real PPP Forgiveness Deadline
The PPP forgiveness process doesn’t come until 10 months after the end of the loan’s covered period. At that point, if forgiveness forms have not been submitted, the funds officially become a loan that needs to be repaid.
Some additional considerations related to PPP forgiveness include:
Utilities. Utilities are among the items besides payroll that borrowers can pay with PPP funds. But there are questions about what qualifies as a utility under the PPP guidance. Internet services, which have become even more vital in this time of social distancing, appear to qualify as utilities under the PPP.
Many exceptions to full-time-equivalent ("FTE") rules. The PPP was designed to help organizations keep paying their employees as pandemic-related closures and slowdowns reduced revenue. As a result, employers who reduce their workforce generally see a reduction in their PPP forgiveness eligibility amount.
But there are numerous exceptions for situations such as:
- An employee who was offered a chance to return to a position but refused.
- An employee who was fired for cause or voluntarily resigned.
- An employee who voluntarily requested and received a reduction in hours.
There are additional exceptions as well to the FTE and wage rules, and borrowers should be aware of them when they apply for forgiveness.
Clarification for self-employed. PPP guidance states that self-employed individuals must compare their 2020 income with their 2019 income to determine their maximum eligible compensation.
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