PPP Loan Forgiveness Application Update: Clarifications on Application Timeline and Owner Compensation
June 25, 2020
On June 22, 2020, the U.S. Small Business Administration (SBA) released Paycheck Protection Program (PPP) – Revisions to Loan Forgiveness Interim Final Rule and SBA Loan Review Procedures Interim Final Rule.
This guidance details two notable changes impacting PPP loan borrowers, including:
1) when a borrower can apply for loan forgiveness and
2) expanded limitations on owner compensation.
The updated regulations also make minor updates to existing guidance addressing the extension of the covered period derived from the June 5, 2020 enactment of the Paycheck Protection Program Flexibility Act (H. R. 7010). Read Aprio’s summary of changes from H.R. 7010 here.
When Can a Borrower Apply for Loan Forgiveness?
A borrower can apply for forgiveness at any time on or before the loan maturity date. However, if the borrower applies for forgiveness before the end of the covered period and has reduced any employee’s salaries or wages by more than 25 percent, the borrower must account for the excess salary reduction for the full 8-week or 24-week covered period.
Expanded Limitations on Owner Compensation
The release of Revisions to the Third and Sixth Interim Final Rules on June 17, 2020, increased the maximum compensation for all employees and owners, which you can read about here. The new interim rules added that the employer portion of retirement plan funding for owner-employees of S-Corporations and C-Corporations is now capped at 2.5 months’ worth of the 2019 contribution amount. Further, healthcare costs paid on behalf of owner-employees of S-Corporations are not eligible for forgiveness.
Let Aprio Help
Aprio has established a dedicated PPP loan forgiveness team that is continuously monitoring new guidance from the SBA, as well as the Treasury, Congress, and the IRS, to ensure we have the latest information when advising our clients.
If you would like to discuss how to interpret these new requirements, accurately complete your forgiveness application, and maximize PPP loan forgiveness, contact Aprio’s dedicated PPP Loan Forgiveness Team for a consultation.
Disclaimer for services provided relative to SBA programs and the CARES Act
Aprio’s goal is to provide the most up to date information, along with our insights and current understanding of these programs and regulations to help you navigate your business response to COVID-19.
The rules regarding SBA programs are constantly being refined and clarified by the SBA and other agencies In certain instances, the guidance being provided by the agencies and/or the financial institutions is in direct conflict with other competing guidance, regulations and/or existing laws.
Due to the evolving nature of the situation and the lack of final published rules, Aprio cannot guarantee that additional changes or updates won’t be needed or forthcoming and the original advice given by Aprio may be affected by the evolving nature of the situation.
You need to evaluate and draw your own conclusions and determine your Company’s best approach relative to participation within these programs based on your Company’s specific circumstances, cash flow forecast and business strategy.
In situations where resources are provided by third parties, those services should be covered under a separate agreement directly with that service provider. Aprio is not responsible for the actions of any other third party.
Aprio encourages you to contact your legal counsel to address the legal implications of the impact of the CARES Act and specifically your participation in any of the SBA programs.
About the Author
Justin Elanjian, CPA, is the Partner-in-Charge of Aprio’s Paycheck Protection Program (PPP) & Employee Retention Credit (ERC) Services. As a national PPP expert, prominent speaker and strategic business advisor, Justin helps both lenders and borrowers navigate the complexities of the PPP. He also helps his clients realize benefits from other stimulus package programs, such as the ERC, and is committed to strengthening his clients’ balance sheets and helping them achieve what’s next. Justin also leads a team of more than 50 professionals who share his passion for helping businesses maximize the federal COVID relief programs.