SBA PPP LOAN FORGIVENESS RULES
By Scott Zickefoose, CPA, CM&AA, Tax Senior Manager
SBA and U.S. Treasury Release Additional Paycheck Protection Program Guidance for Borrowers
The Small Business Administration (SBA) and United States Treasury released additional FAQ and Interim Final Rule guidance on May 13, 2020, to assist borrowers as they navigate the Paycheck Protection Program (PPP). The changes set forth additional considerations regarding the “economic uncertainty” language, set forth safe harbors and provide opportunities for some to secure additional PPP funding.
New information regarding certification of economic uncertainty and the need for the PPP loan
- Treasury initially released FAQ 31 which caused significant confusion among borrowers, indicating borrowers need to reevaluate their initial economic need certification in light of the few details contained within the FAQ (Refer to Keiter’s update on FAQ 31). If borrowers felt they were unable to make the requisite certification, Treasury provided a safeharbor deadline of May 14, 2020, to return the funds without penalty or recourse. One day prior to the May 14, 2020, deadline, Treasury released FAQ 46 which provides the following additional information for borrowers evaluating their ability to certify that “current economic uncertainty” of the COVID-19 pandemic makes such a loan for their business “necessary to support their ongoing operations”.
New information contained in FAQ 46
If the borrower, along with its affiliates, has an original PPP principal borrowing of less than $2 million, the borrower will be deemed to have made the required certification in good faith. This guidance effectively gives a safe-harbor to the smaller borrowers and does not require them to defend their initial certification if ever audited by the Small Business Administration. It is important to note that this safe harbor provision is specific to the certification of economic uncertainty. Borrowers must still certify the accuracy of all other certification made during the borrowing process.
Borrowers that, along with their affiliates, have loans with original principal balances greater than $2 million, will still need to evaluate their ability to make the requisite certification. Although SBA remains committed to auditing all loans over $2 million, as previously announced in FAQ 39, Treasury has provided some relief to these larger borrowers in its most recent FAQ. If the SBA determines that the larger borrowers were unable to make the certification in good faith, there will be no recourse to the borrower if the funds are repaid at the time of the SBA’s determination. Treasury indicates that the SBA will not “pursue administrative enforcement or referrals to other agencies” if the borrower repays the loan after receiving notification from the SBA. While this allows borrowers to feel a sense of relief that they will not have legal exposure for making this certification (provided funds are repaid), this FAQ does not provide any additional clarity to larger borrowers on how the SBA is going to evaluate the ability of a borrower to make the certification in good faith. The high degree uncertainty around loan forgiveness still exists.
Extension of safe harbor deadline
- In FAQ 47, Treasury extended the safe-harbor deadline to return the loan proceeds from May 14, 2020, to May 18, 2020. Borrowers that believe they can not make the requisite certification in good faith now have a few extra days to return the funds.
Ability to increase loan size, based on new PPP guidance
- After many borrowers applied for and received funds, Treasury released two items of guidance that had they known these facts, the borrower could have applied for more funds.
- Initially it was not clear whether partners’ compensation (guaranteed payments and/or other self-employment income) should be considered with the partnership’s application. Many partnerships applied for funding and excluded partner compensation (or owner replacement compensation) from their loan request.
- An interim final rule allowed seasonal employers to use any consecutive 12-week period between May 1, 2019, and September 15, 2019, to determine maximum loan size. This flexibility was not permitted in the Act.
On May 13, 2020, Treasury released a new interim final rule that allows borrowers to go back and request an additional PPP loan if they were eligible for more funds based on one of the two changes above. The eight week covered period still starts on the date of initial funding, even if a borrower receives a subsequent increase to the loan.
As a reminder, we are still awaiting definitive guidance addressing loan forgiveness and will host a webinar once this guidance is provided by Treasury.
The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.