Submitted by Joel Shabsin, CPA
On August 4, 2020 the SBA and Treasury released a 10 page document answering numerous frequently asked questions regarding loan forgiveness for the PPP. Because the government took the time to issue this guidance, it appears that the recent conversations about automatic forgiveness for PPP loans under $150,000 will not come to fruition.
The document has four sections that talk about forgiveness calculations. These include:
- General loan forgiveness
- Loan forgiveness payroll costs
- Loan forgiveness non payroll costs
- Loan forgiveness reductions
A large portion of the guidance in the payroll and non payroll cost sections are related to costs incurred during the covered period (either the 8 week or 24 week period after the loan proceeds are received). In general it reiterates that these costs that are incurred during the covered period but paid after the covered period are eligible for loan forgiveness if they are paid before the next regular payroll date for payroll costs or before the next regular billing date for non payroll costs. It also discusses costs incurred before the start of the covered period for both payroll costs and non payroll costs and concludes that if these costs are paid during the covered period, they are eligible for use in the forgiveness calculations.
The document includes examples explaining the above guidance. Two examples clarify the use of non payroll costs in the forgiveness calculations.
Example 1: A borrower’s 24 week covered period runs from April 20 through October 4. On May 4th they receive their electric bill for April and pay it on May 8th. Even though a portion of the costs were incurred before the covered period they are eligible for loan forgiveness because they were paid during the covered period.
Example 2: In addition it goes on to explain that if they receive their electric bill for September on October 6th and pays it on October 16th those costs are eligible for loan forgiveness because they were incurred during the covered period and paid before the next regular billing date.
As far as interest that can be used for forgiveness, the document specifies that interest on unsecured credit such as credit cards is not includable in the forgiveness calculations because the loan is not secured by real estate or personal property.
In the area of loan forgiveness reductions it states that a borrower may exclude any reduction in FTE employees if they can document in good faith both an inability to rehire individuals who were employees of the borrower on February 15, 2020 and an inability to hire similarly qualified individuals for unfilled positions on or before December 31, 2020. The documents to
show compliance with this exemption include written offers to rehire an employee, a written record of the offer’s rejection, and a written record of efforts to hire a similarly qualified employee. Borrowers are also required to inform the state unemployment insurance office of any rejected rehire offer within 30 days of the employee’s rejection of the offer.
It also discusses in detail how to calculate reductions in loan forgiveness arising from reductions in employee salary or hourly wage and gives several very detailed examples of how the calculation affects the forgiveness calculations.
The above is just a small portion of the useful information about loan forgiveness in the document. For the full 10 page document you can go to the U.S. Department of the treasury’s website and click on the Covid relief banner in red for paycheck protection loans. Then scroll down to Program Rules and click on frequently asked questions on loan forgiveness.