SBA Issues PPP Interim Final Rules on Loan Forgiveness and Loan Review Procedures
On May 22, 2020, the SBA released the Interim Final Rule on Loan Forgiveness and the Interim Final Rule on SBA Loan Review Procedures and Related Borrower and Lender Responsibilities.
The Interim Final Rules supplement the loan forgiveness application which borrowers must submit to apply for forgiveness of a Paycheck Protection Program (PPP) loan and provide additional clarification regarding the calculations and SBA review of information requested with respect to the forgiveness application, including:
Interim Final Rule on Loan Forgiveness
- Forgiveness Timeline. The PPP lender has 60 days from receipt of a complete loan forgiveness application to issue a decision to the SBA regarding loan forgiveness. The SBA will remit the forgiveness amount plus any interest accrued through the date of payment not later than 90 days after the lender issues its decision to the SBA. A different timeline may apply to a particular borrower if the SBA elects to review its forgiveness application (as discussed below).
- Calculation of Eligible Payroll and Nonpayroll Costs. Payroll costs incurred during the borrower’s last pay period of the covered period or the alternative payroll covered period (as defined in the loan forgiveness application) are eligible for forgiveness if paid on or before the next regular payroll date. A nonpayroll cost is eligible for forgiveness if it was paid or incurred during the covered period and paid on or before the next regular billing date, even if the billing date is after the covered period.
- Payroll Costs Include Hazard Pay and Bonuses. Forgivable employee compensation (up to $100,00 per employee on an annualized basis) includes commission payments to furloughed employees, bonuses and hazard pay during the applicable period.
- Calculation of Full-Time Equivalent (FTE) Employees. As previously disclosed, borrowers seeking forgiveness must document their average number of FTE employees during the covered period (or the alternative payroll covered period) and their selected reference period. For purposes of this calculation, borrowers must divide the average number of hours paid for each employee per week, capping this quotient at 1.0 (an employee who was paid 48 hours per week during the covered period would be considered to be an FTE employee of 1.0). For employees who were paid less than 40 hours per week, the borrower may either calculate the average number of hours a part-time employee was paid during the covered period or elect to use a full-time equivalency of 0.5 for each part-time employee. Borrowers may select only one of these two methods and must apply that method consistently to all of their part-time employees.
- Exemptions for Offers to Restore Reductions. Consistent with the instructions in the loan forgiveness application, a borrower’s loan forgiveness amount will not be reduced if the borrower laid-off or reduced the hours of an employee, then offered to rehire the same employee for the same salary and number of hours, or restore the reduction in hours, but the employee declined the offer. To avail itself of this exemption, the borrower must maintain records documenting the offer and rejection and inform the applicable state unemployment insurance office of such employee’s rejected offer of reemployment within 30 days of the employee’s rejection of the offer.
- Exemptions for FTE Reduction Events. In accordance with the directions in the loan forgiveness application, the SBA exempts employees from the calculation of the FTE reduction penalty when an employee of the borrower is fired for cause, voluntarily resigns, or voluntarily requests a schedule reduction (an “FTE Reduction Event”).
- No Double Counting for FTE and Salary/Wage Reductions. To help ensure uniformity across all borrowers in applying the FTE reduction requirement and the salary/wage reduction requirement, the salary/wage reduction will apply only to the portion of the decline in employee salary and wages attributable to the FTE reduction. For example, when a borrower reduces an FTE employee’s hours from 40 hours per week during the selected reference period to 20 hours per week during the covered period but the hourly wage did not change, the reduction in the employee’s total wages is entirely attributable to the FTE employee reduction and the borrower is not required to conduct a salary/wage reduction calculation for that employee.
Interim Final Rule on SBA Loan Review Procedures and Related Borrower and Lender Responsibilities
- SBA Reviews of Individual PPP Loans. The SBA may undertake a review at any time in the SBA’s discretion. As noted on the loan forgiveness application, the borrower must retain PPP documentation in its files for six years after the date the loan is forgiven or repaid in full and permit authorized representatives of the SBA to access such files. The SBA may review whether a borrower was eligible for a PPP loan based on the provisions of the CARES Act, the rules and guidance available at the time of the borrower’s PPP loan application, and the terms of the borrower’s loan application.
- Appeal of SBA Determinations. If the SBA determined that a borrower is ineligible for the PPP loan, the SBA will direct the lender to deny the loan forgiveness application in whole or in part, as applicable, and may seek repayment of the outstanding PPP loan balance or pursue other available remedies. The borrower will have the opportunity to respond to the SBA’s questions that may arise during the 90-day review period. The guidance also indicates that the SBA will issue a separate interim final rule addressing the process for a borrower to appeal the SBA’s determination that the borrower is ineligible for a PPP loan or the loan forgiveness amount claimed by the borrower.
See complete documents from the SBA here:
The SBA Focus Group of the COVID-19 Task Force at Klehr Harrison stands ready to assist you in your business and legal needs. We will continue to provide additional information and guidance as the PPP loan program is implemented.
Co-authors Matthew McDonald, partner and Elizabeth Bucilla, associate are members of the Corporate & Securities Department at Klehr Harrison.