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PPP Loan Forgiveness Updates

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  • A new FAQ on Timing of Principal and Interest Payments
  • A New Interim Final Rule Serves Two Separate Purposes
  • Provides Relief for (Very) Small Business Loans, Whereby Another Form 3508 is Born
  • Requirements for Loan Forgiveness Documentation for Loans of all Sizes Receives Clarity

The slow trickle of information from the SBA and the Treasury was briefly opened for what now passes as a floodgate of information last week as a new Interim Final Rule was released and the SBA announced relief for most PPP loans under $50,000. That relief is also accompanied by a new 3508S Forgiveness Application Form, and the IFR defines lender responsibilities for reviewing supporting documentation for forgivable costs for all loans. But before the IFR was released, a new FAQ was also issued, which is what we will analyze first.

FAQ #52

On October 7th the Department of the Treasury gave us another PPP FAQ, (#52 if you’re counting), which clarifies questions around PPP loan agreements and the timing of loan payments required for PPP borrowers. As with the other 51 IFR’s, the ruling is posed in a Q&A format. The Question asks if lenders and borrowers are required to modify PPP promissory notes to reflect the extended deferral period for loan principal and interest, and fees as modified by the Paycheck Protection Program Flexibility Act of 2020 (Flexibility Act.) The Answer: The extension of the deferral period under the Flexibility Act automatically applies to all PPP loans. Lenders are required to notify borrowers of the change in their deferral period, but a formal modification to the promissory note is not required. Borrowers who do not apply for forgiveness have 10 months from the end of their covered period to begin repaying loan principal and interest.

It is important to note that prior to the Flexibility Act, loan deferral periods could end 6 months after the end of the borrower’s covered period. For businesses who received PPP funding in April, that clock would already be running, using either the 8 or 24 week covered period. The Flexibility Act extends the grace period to ten months after the end of the covered period. Perhaps more importantly, the Flexibility Act states that for the portion of a PPP loan balance that is not forgiven, borrowers are not required to begin making payments for principal and interest (or fees) until the date that the SBA remits forgiven loan amounts to the PPP lender. For borrowers who could be facing cash flow concerns and/or substantial remaining loan balances after forgiveness, this may be another compelling reason to consider delaying the forgiveness application process.

3508S

Not to be outdone by the Q&A group, on October 8th the SBA and Treasury group responsible for Interim Final Rules released new guidance for small PPP loans, and issued the “PPP Loan Forgiveness Application Form 3508S” to be used only by borrowers who received a loan of $50,000 or less, and together with any affiliates, had total outstanding PPP loans under $2,000,000. The IFR also addressed loan documentation and lender responsibilities.

The first purpose of this interim final rule is to further simplify the forgiveness and loan review processes for PPP loans of $50,000 or less. To accomplish this the SBA has issued Form 3508S. Any business who can apply for forgiveness using 3508S is effectively exempt from any reductions in the borrower’s loan amounts due to reductions in full-time equivalent (FTE) employees or reductions in salary or wages (for employees earning less than $100,000 in 2019) that would otherwise apply to any loan greater than $50,000. This will be substantial relief for small businesses taking loans that could not maintain wages or employment levels due to the pandemic, as long as the borrowings were used for allowable expenses. There are more than 3.5 million loans of this size outstanding. In short, if your small business has a loan of $50,000 or less and is not part of an affiliated group with loans totaling more than $2,000,000, this IFR is probably welcome news.

Supporting Documentation

Affecting virtually every PPP borrower is the second facet of the new IFR, “Changes to the Loan Review Rules.” The IFR states that when a borrower submits a loan forgiveness application the lender shall both confirm the receipt of the borrowers certifications contained in the forms and confirm the receipt of the documentation the borrower submits in supporting and verifying payroll and non-payroll costs as specified in the applicable forgiveness form.

The IFR goes on to answer a question many companies are asking: What do you submit and verify when you’ve “outspent” your PPP loan proceeds on, for example, just payroll costs? The IFR requires lenders to “confirm the borrower’s calculations” up to the amounts required to reach the requested portion of forgiveness. This means that companies who have out-spent their loan proceeds on payroll alone do not need to submit supporting documentation for other forgivable costs such as rent and utilities. With many outsourced payroll providers now generating PPP loan covered period reports for their customers, this process is becoming more straightforward for a lot of businesses.

We are expecting more interim final rulings, SBA FAQs, and other guidance related to loan forgiveness in the coming weeks. We will continue to provide updates as the information is released. Berntson Porter’s PPP Forgiveness team is available to assist with loan forgiveness application process – for additional information and to have one of our team members contact you, please fill out the intake form linked here.

Berntson Porter is here to help businesses navigate these challenging times. Visit our Resource Center for up-to-date information about COVID-19 legislation that impacts you and your business.