Jun 18, 2020
Interim SBA Ruling
On Tuesday, June 16 the SBA filed its 19th Interim Final Rule (IFR) focused on revisions made from Paycheck Protection Program Flexibility Act (Flexibility Act) signed into law on June 5th.
Notable provisions in the unpublished document include:
- The newest guidance shows how to calculate owner compensation. For Borrowers using a 24-week Covered Period, this amount is capped at $20,833 (the 2.5-month equivalent of $100,000 per year) for each individual or the 2.5-month equivalent of their applicable compensation in 2019, whichever is lower. For Borrowers using an 8-week Covered Period, this amount is capped at $15,385 (the eight-week equivalent of $100,000 per year) for each individual or the eight-week equivalent of their applicable compensation in 2019, whichever is lower. While the guidance is somewhat unclear, this cap appears to apply to owners of all entity types, and at any level of ownership.
- The payroll requirement was reduced from 75% to 60%.
- Lastly, the loan forgiveness amounts for non-payroll expenses have also been extended to 24 weeks, making it much easier to meet loan forgiveness thresholds.
EZ Version Loan Application
In addition, the SBA also released two new applications: a revised full-loan application and the new EZ Forgiveness Application. The agency says the EZ version “requires fewer calculations and less documentation” and reduces the burden for smaller recipients, like self-employed individuals and sole proprietors. This new EZ application applies to borrowers that:
- Are self-employed and have no employees; OR
- Did not reduce the salaries or wages of their employees by more than 25%, and did not reduce the number or hours of their employees; OR
- Experienced reductions in business activity as a result of health directives related to COVID-19, and did not reduce the salaries or wages of their employees by more than 25%”.
Economic Injury Disaster Loan (EIDL) Re-opened
The SBA recently re-opened the Economic Injury Disaster Loan (EIDL) and EIDL Advance program portal to all eligible applicants experiencing economic impacts due to COVID-19. Businesses with 500 or fewer employees are generally eligible. The loan process is streamlined and is completed online directly through the SBA. Loan amounts are determined by the SBA and can be up to $2 million with repayment terms up to 30 years and an interest rate of 3.75% (2.75% for non-profits). Additionally, you can request an advance on the loan, which will be awarded as $1,000 per employee, up to a total of $10,000.
As always, should you have questions or concerns about your specific situation, please contact your William Vaughan Company advisor. Additional resources can be found on our WVC COVID-19 Resource Center. Finally, stay tuned for an updated version of our WVC PPP Loan Forgiveness calculator which will reflect this updated guidance.
Jun 05, 2020
Today, President Trump signed the Paycheck Protection Program Flexibility Act (the PPP Flexibility Act). This Act provides much-needed relief by relaxing the stringent guidelines for businesses to receive loan forgiveness under the Paycheck Protection Program.
Key provisions include:
- The original 8-week period in which borrowers needed to spend the PPP Loan proceeds received can now be extended to 24 weeks. This extension provides additional time and opportunity for businesses to make the qualified expenditures necessary to have the loan proceeds forgiven. However, it is advisable if all loan proceeds have already been spent, businesses elect to apply for the original 8-week period (which is permissible) and expedite their forgiveness assuming the full-time equivalents (FTEs) have been restored.
- Previous regulations required a minimum of 75% of the loan proceeds forgiven must be spent on payroll expenses, health insurance, and/or retirement plans. If not met, loan recipients would forfeit a portion of their forgiveness. Thankfully, that hurdle has been dramatically reduced to 60% which allows businesses to now allocate up to 40% of the potentially forgivable loan proceeds to rent, utilities, and interest on secured debt. However, it does appear upon reading this is a “cliff rule”. Meaning if you only spend 59% on payroll, potentially ZERO dollars will be forgiven.
- Before H.R. 7010, PPP loan forgiveness rules indicated the amount forgiven would be reduced proportionately to the reduction of a recipient’s workforce during the original 8-week window if that same number of employees were not brought back by June 30th. According to updated legislation, this window has been modified to use the new 24-week window mentioned above with the amnesty rehire date being pushed back to December 31, 2020. For example, take an employer with 80 employees pre-pandemic who reduced its workforce to 40 employees during the 24 weeks. Assuming they spend the loan proceeds on qualified expenses during said 24 weeks, the employer will receive complete forgiveness so long as they’ve brought the workforce back to 80 by December 31st.
- Whether due to government restrictions still in place, a lack of qualified individuals, or even individuals choosing not to return to work as a result of the current federal unemployment subsidy, an exception to the rehire rule has been enacted. To qualify for this exception, the borrower must establish they have been unable to restore previous FTE levels due to one or more of the aforementioned scenarios. Unfortunately, this exception is still largely a gray area and we are hopeful that additional guidance is imminent.
- The repayment period for loan proceeds still owed after reductions for forgiveness and EIDL grants (up to $10,000) has been extended from 2 years to 5 years with the interest rate remaining unchanged at 1%. Additionally, payments on the amounts still owed can be deferred up to the date on which the SBA makes the loan forgiveness determination.
Many loan recipients were hopeful for some clarification and additional guidance as it pertains to the deductibility of expenses for which the PPP loan proceeds were used. However, this still remains unanswered.
William Vaughan Company continues to keep a careful watch on additional legislation and is committed to sharing with you our insights and perspectives as regulations develop. To ensure you are staying up-to-date, we encourage you to sign-up for our WVC Insights emails here.