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PPP Flexibility Act FAQs

PPP Flexibility Act FAQs

June 15, 2020

The newly-passed Paycheck Protection Program Flexibility Act is the latest in the evolution of the PPP loan assistance created in the federal CARES Act. As before, the PPP Flexibility Act answered some questions but didn’t answer others. Our June 11 webinar on the PPP Flexibility Act can be viewed here:

As we await additional guidance from the Treasury Department and the Small Business Administration, we’ll address some Frequently Asked Questions here.

[Based on information available as of June 15, 2020.]

The forgiveness period has been expanded from eight weeks or June 30 to 24 weeks or December 31. Can borrowers choose any period between eight and 24?

  • No. Based on available guidance at this time, it appears that borrowers funded prior to June 5 will be required to choose an eight-week forgiveness period or 24. One or the other. Borrowers funded after June 5 will have the 24-week period.

Has the deadline for applying for a PPP loan been extended to December 31?

  • No. The application deadline is still June 30, 2020.

Is the baseline date for employee headcount and payroll levels still the same or has it been adjusted as well?

  • The baselines for FTE and payroll costs remain the same as the purpose of the PPP loans is to help business maintain or return to pre-COVID employment levels.

Originally, the maximum forgiveness of payroll compensation per employee under the PPP was $100,000 annualized over what was an eight-week covered period or approximately $15,385 per employee.  The current Forgiveness Application includes the statement, "For each individual employee, the total amount of cash compensation eligible for forgiveness may not exceed an annual salary of $100,000, as prorated for the covered period."  With the covered period increased to 24 weeks, does the maximum forgiveness per employee increase to 24/52 of $100,000 or $46,153 per employee?

  • The Act doesn’t address this. There has been significant discussion amongst commentators but we will need official guidance on this question.

Does the lending bank make the final decision on forgiveness? Is the bank required by the CARES Act to render a decision on forgiving a loan within a fixed period of time?

  • The lender’s submission on behalf of the borrower will be reviewed by SBA, so SBA has the final decision. The lender has 60 days from borrower submission of all necessary documents to submit to SBA. They could ask for more documentation which would extend the time. SBA then has 90 days to approve, or not.

If a PPP borrower has repaid their loan to $0, can they re-apply for a new PPP loan as long as it is approved and funded before June 30?

  • The guidance is not clear on this. Originally, we were told that there could be only one PPP loan per borrower. When the safe harbor repayment date in May was extended to allow for repayment in light of concern related to good faith certification of need, many borrowers repaid their PPP loans. We have heard of some borrowers who repaid at that time getting approved for another PPP loan but that is anecdotal and not based on specific guidance. Businesses should talk to their lender on this topic.

If an employer is not able to restore the baseline number of FTEs within the covered period, will its forgiveness be reduced by a percentage of the total loan amount or only the payroll costs?

  • If the company does not meet the FTE rehire requirements, its maximum forgiveness will be proportionately reduced, so it would apply to the entire loan amount (not just the payroll portion of the loan calculation).

The PPP guidance refers to "restoring workforce levels." Does that mean re-hiring the same people or just maintaining the same number of people and payroll? What happens of people quit or an employer needs to fire someone for cause?

  • The FTE and payroll calculations do not require specific people to be employed. Employers are still free to terminate employees for non-discriminatory reasons (or for acceptable reasons set forth in an applicable employment contract). Similarly, employers are free to hire whomever they choose but should be mindful of any potential claims for discrimination or retaliation in their hiring or re-hiring decisions.

Does the new FTE Safe Harbor provision take into account employees who have quit for non-COVID related reasons such that the loan recipient would not be penalized for them?

  • It seems to, but it added some things to the earlier guidance, such as “”.  Given that language, employers will likely need to show they searched for a suitable replacement.

Are there limitations on how much of an owner-employee of an S-corp can include for his or her salary the company’s PPP payroll number?

  • An S-corp’s owner-employee is limited to the $100,000 cap like other employees.

Do both paid and incurred costs count as payroll costs? For example (using the eight-week covered period), can a company that has weekly payroll include the first week’s paid payroll (which was incurred before the covered period) and the next 8 weeks payroll incurred during the covered period (the last payroll being paid after the covered period ended)?

  • First, the SBA permits employers with weekly or bi-weekly payroll schedules to use an Alternative Payroll Covered Period (“APCP”) for purposes of calculating and submitting “Payroll Costs.” The APCP starts on the first day of the first pay period following loan disbursement and continues for eight weeks. The use of the APCP is optional; however, eligible employers who elect to calculate costs based on the APCP must use that period consistently throughout the loan forgiveness application. The standard Covered Period (“CP”) is still used for purposes of calculating covered mortgage costs, covered lease/rent costs, and covered utility payments.
  • The original guidance says “incurred and paid” during the covered period. The loan forgiveness application released in mid-May, however, uses the phrase “incurred or paid.” Payroll costs paid after the beginning of the CP that relate to an earlier payroll period may be included. Payroll costs incurred but not paid during the borrower's last pay period of the CP or APCP are eligible for forgiveness if paid on or before the next regular payroll date.

Are rent payments to a related entity or owner eligible for forgiveness?

  • If there is a lease with that related entity or owner which existed as of February 15, 2020, the rent amount is in line with the market, and the PPP borrower has historically paid the rent, this is likely eligible for forgiveness.

Are lease payments for personal property, such as delivery trucks, copiers, etc., permissible expenses for PPP funds?

  • Yes, if the leases existed prior to February 15, 2020.
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