The SBA released the latest installment in its evolving guidance on Paycheck Protection Program (PPP) loans for small businesses this week in form of a new Loan Forgiveness Application and revisions to the Third and Sixth Interim FInal Rules implementing the CARES Act and the Paycheck Protection Program. The new Loan Forgiveness Application has been streamlined, shrinking from the original 11-page document down to five pages. An EZ Loan Forgiveness Application was also rolled out for certain borrowers. The Rule revision addressed the changes to the PPP caused by the June 5, 2020 PPP Flexibility Act and specifically outlined the compensation limitations for forgiveness in the newly extended Covered Period.

New Loan Forgiveness Application Highlights

The revised PPP Loan Forgiveness Application (which is accompanied by seven pages of instructions) indicates that:

• Health insurance expenses for S corporation owners cannot be included when calculating payroll costs but retirement benefits for S corporation owners are eligible expenses;
• Safe harbors for excluding salary and hourly wage reductions and reductions in the number of FTE employees from loan forgiveness reductions can be applied as of the date the loan forgiveness application is submitted (i.e., borrowers do not need to wait until December 31 to apply for forgiveness in order to use the safe harbors);
• Borrowers that received PPP loans prior to June 5, 2020 can choose between the original eight-week Covered Period or the extended 24-week Covered Period established in the PPP Flexibility Act (this is the first official confirmation of the requirement to choose eight weeks or 24, rather than something in between).

The EZ Loan Forgiveness Application (accompanied by four pages of instructions) requires fewer calculations and less documentation than the full application. It is available to the following categories of borrowers:

• Those who are self-employed and have no employees (including independent contractors/freelancers and sole proprietors); or
• Those who did not reduce salaries or wages of employees by more than 25% during the Covered Period (or Alternative Payroll Covered Period) and did not reduce the number or average paid hours of their FTE employees (the safe harbor continues to be applicable here); or
• Those who did not reduce salaries or wages of employees by more than 25% during the Covered Period (or Alternative Payroll Covered Period) and were unable to operate during the Covered Period at the pre-COVID (pre-February 15) levels of business activity due to compliance with requirements or guidance issued by HHS, CDS, or OSHA related to sanitation, social distancing, or other work/customer safety requirement related to COVID.

Revisions to Interim Final Rule

In addition to the new loan forgiveness applications, SBA also issued revisions to the interim final rules implementing the PPP loans. Most of the rule revisions merely update the rule to comport to the new PPP Flexibility Act. However, there were two previously-unanswered questions addressed in the rule revisions.

First, the original PPP allowed loan forgiveness for payroll costs for up to $100,000 annualized per employee, or $15,385 per employee over the eight-week Covered Period. With the new extension of the Covered Period to 24 weeks, the new maximum (for borrowers using the extended Covered Period) is $46,154 per individual employee. (A footnote in the interim final rule suggests though that borrowers may not be able to reach that maximum unless they reduced FTEs and were eligible for a safe harbor exemption from the resulting reduction in forgiveness, due to the way the maximum PPP loan amount is calculated.)

Second, the calculation above applies only to employees and not to owner compensation for businesses filing a Schedule C or F with their tax returns. For those businesses, forgiveness for owner compensation replacement is calculated for the original eight-week period as 8 ÷ 52 × 2019 net profit, up to a maximum of $15,385. For the expanded 24-week period, the calculation for forgiveness is 2.5 months (2.5 ÷ 12) of 2019 net profit, up to $20,833, excluding any qualified sick or family leave equivalent amount that the business claims credit for under Families First Coronavirus Response Act (FFCRA). The interim final rule explains that this provision is to prevent owners from achieving PPP windfalls unintended by Congress.

More questions about the PPP? Check out our previous articles on the topic:

• PPP Flexibility Act FAQs (June 15, 2020)
• Webinar Video | COVID-19 Relief: Paycheck Protection Program Flexibility Act of 2020 (June 11, 2020)
• Paycheck Protection Program Flexibility Act of 2020 Signed into Law (June 5, 2020)

If you have specific questions about your PPP loan or forgiveness application, please feel free to reach out to one of our business attorneys in Wichita, Overland Park, or Kansas City.