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Loan Forgiveness Applications under the CARES Act - What you need to know.

The Paycheck Protection Program (PPP) loans were created in conjunction with the CARES Act, or “Coronavirus Aid, Relief, and Economic Security Act”.

Attention to detail and a correctly completed forgiveness application will be key to ensuring the maximum amount is forgiven. Understanding what is in the application now will greatly increase a small business's chances of receiving maximum PPP loan forgiveness. Solution Resources has a process designed  to maximize and accurately determine and complete the PPP forgiveness amount.  Call if you need assistance with the loan forgiveness application. In addition, we have compiled some information that you should be aware of as you go through the loan forgiveness process.

The U.S. Small Business Administration (SBA), in consultation with Treasury, has  released  a revised loan forgiveness application for the PPP. The SBA also unveiled a new EZ application for forgiveness of PPP loans. The applications reflect changes to the PPP made by the Paycheck Protection Flexibility Act of 2020, P.L. 116-142, which became law June 5. The applications and instructions are attached to this email.

The most recent releases came only hours after the SBA issued a new interim final rule providing guidance on how to calculate employee and owner compensation for loan forgiveness in the new 24-week covered period created by the Paycheck Protection Flexibility Act.

Congress passed the Paycheck Protection Flexibility Act to make it easier for small businesses and other PPP borrowers to qualify for full loan forgiveness. Among the changes in the act are an expansion of the “covered period” for loan forgiveness to 24 weeks from eight weeks, a reduction of the proportion of proceeds that must be spent on payroll costs om 75 down to 60%, and the establishment of a safe harbor for businesses that have been unable to return to the level of business activity they had before the COVID-19 pandemic due to compliance with health and safety guidelines for slowing the spread of the virus.

Additional Application Highlights
The revised PPP Loan Forgiveness Application and instructions include a number of notable items. Among them are:

The Form 3508 was modified; Form 3508EZ newly released.
 SBA will reduce the amount forgiven by any Economic Injury Disaster Loan (known as EIDL)  advance that was received.
The borrower must keep backup documentation for six years. A description of the required documentation is listed in the application’s instructions and includes banks statements, tax forms, canceled checks, and receipts. Some documentation must be submitted to the lender. As you address PPP matters, remember, Document, Document, Document!
Expenses eligible or ineligible for forgiveness – Remembering that agreements must have been in place on February 15, 2020:1
Payroll costs include:
Salary, wage, commission or similar up to $100,000
Cash tips or equivalent
Payment for vacation, parental, family, medical or sick leave (but not leave covered by the Families First Coronavirus Response Act).
Dismissal or separation allowance
Group health care benefit payments (including insurance premiums)
Retirement benefits
State and local taxes (based on employee compensation)
Health insurance costs for S corporation owners cannot be included when calculating payroll costs; however, retirement costs for S corporation owners are eligible costs.
The following are all considered forgivable utilities expenses for the PPP:
Electricity
Water bill
Gas
Sewage
Telephone (cell phone and landline)
Internet bill
Transportation costs (use the same method used for tax purposes, either mileage or actual costs)
Rent, including leases on real AND personal property.1
Payments of mortgage interest. There is currently a gray area as to whether interest on a vehicle loan used for delivery purposes is covered.  We are awaiting guidance.
Safe harbors for excluding salary and hourly wage reductions and reductions in the number of employees (full-time equivalents) from loan forgiveness reductions can be applied as of the date the loan forgiveness application is submitted. Borrowers don’t have to wait until Dec. 31 to apply for forgiveness to use the safe harbors.
Borrowers that received loans before June 5 can choose between using the original eight-week covered period or the new 24-week covered period. Neither the Covered Period nor the Alternative Payroll Covered Period can extend beyond Dec. 31, 2020. In other words, it changed the covered period in which PPP loan proceeds must be used for certain purposes to be eligible for forgiveness from eight weeks from origination of the loan to the earlier of: (i) 24 weeks from origination or (ii) December 31, 2020 (although permits borrower of previously originated loan to elect eight-week covered period).
The minimum term for PPP loans is raised to five years for all loans made on or after June 5. For loans made before June 5, the two-year minimum maturity remains in effect unless both the borrower and the lender agree to extend it to five years. 2
The proportion of PPP funding that must be used on payroll costs to qualify for full forgiveness drops to 60% from 75%.
Repayments of the unforgiven portion of the loan were initially deferred for at least 6 months but not more than one year.  Under the new Act, recipients may defer repayments until the date on which the amount of forgiveness is remitted by the SBA  to the lender, i.e. the” Forgiveness Application is submitted”. The Act adds that if an eligible recipient fails to apply for forgiveness of a covered loan within 10 months after the last day of their covered period, they shall make payments of principal, interest, and fees “beginning on the day that the forgiveness amount is remitted to the lender.3 

Footnote 1:  Additional guidance from the Treasury Department is expected and may address some areas of confusion or discrepancy:  Payroll Costs, Non-cash compensation, Eligibility of CAM under rent obligations, requirements to maintain employees after the covered period and the permitted use of unused loan funds after forgiveness.

 Footnote 2:  Analysts do not believe the intent was to restrict the minimum maturity to 2 years, so although there is language regarding borrower and lender’s mutual agreement to modify the existing maturity date, an additional amendment may be in the works to amend that clause within the law.

Footnote3:  Originally under the CARES Act, no payment was required under a PPP loan until six months after the loan was funded. With the extension of the covered period for forgiveness, it was necessary to extend the initial payment date. To understand the implications of this change, a borrower now has until 24 weeks after funding of the PPP loan or December 31, 2020 (whichever is earlier) to apply the loan proceeds toward certain permitted uses that would then serve as the basis for calculating the amount of loan forgiveness. At that point, the borrower would apply for loan forgiveness with its lender, who has 60 days to act on the application, and forward its recommendation on to the SBA. The SBA then has 90 days to act on that recommendation and to remit the forgiveness proceeds and interest to the lender, at which point the payments on the unforgiven balance of the PPP loan would begin.   

 Below is a screenshot of the tool we use to maximize the forgiveness.  (Includes the 3508EZ.) You can increase the size of the screen shot (just grab the corners) and note the various forms listed in the tabs. The calculations are built into the spreadsheet.

 Paycheck Protection Program
PPP Loan Forgiveness Application Form 3508EZ

 

Please call if you have any questions or need assistance in completing the Loan Forgiveness Application

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