On June 22, the U.S. Small Business Administration (“SBA”) issued an updated interim final rule (the “Rule”) to reflect changes made in loan forgiveness by the Paycheck Protection Program (“PPP”) Flexibility Act.

• When to Apply for Forgiveness. A borrower may submit a loan forgiveness application any time on or before the maturity date of the loan, including before the end of the covered period, if the borrower has used all of the loan proceeds for which the borrower is requesting forgiveness. If the borrower applies for forgiveness before the end of the covered period and has reduced any employee’s salaries or wages in excess of 25%, the borrower must account for the excess salary reduction for the full 8-week or 24-week covered period. This means that a borrower that chooses to file before the end of the covered period can’t mitigate any salary reductions post-filing for forgiveness. Please note, the Rule does not address calculating FTEs when a borrower files before the end of the covered period.

• General Process to Obtain Loan Forgiveness. A borrower must complete and submit the Loan Forgiveness Application (SBA Form 3508, 3508EZ, or lender equivalent) to the lender. The lender has 60 days from receipt of a complete application to issue a decision to the SBA. The SBA will remit the appropriate forgiveness amount to the lender, plus any interest accrued through the date of payment, not later than 90 days after the lender issues its decision to SBA. The lender is responsible for notifying the borrower of remittance by SBA of the loan forgiveness amount and the date on which the borrower’s first payment is due, if applicable. If the SBA chooses to review the loan prior to receipt of the loan forgiveness application, the lender does not need to complete its review and must collect all documents from the borrower and send them directly to the SBA.

• Reviewing a Lender’s Decision. A borrower may request that the SBA review the lender’s decision regarding forgiveness of the loan in the event that the lender determines that the borrower is not eligible for forgiveness.

• Full Forgiveness. If SBA determines that the full amount of the loan is eligible for forgiveness and remits the full amount of the loan plus accrued interest to the lender, the lender must mark the PPP loan note as “paid in full” and report the status of the loan as “paid in full” on the next monthly 1502 report filed by the lender.

• Loan Forgiveness Application Submitted More than 10 Months After the Covered Period. Payments on the loan will no longer be deferred. The lender must notify the borrower of the date the first payment is due. The lender must report that the loan is no longer deferred to SBA on the next monthly SBA Form 1502 report filed by the lender.

• Unemployment Report. Borrowers are required to inform the applicable state unemployment insurance office of any employee’s rejected rehire offer within 30 days of the employee’s rejection of the offer. Note that further information on this process is forthcoming.

• Caps on Compensation.

  • For owner-employees and self-employed individuals’ payroll compensation is capped at 2.5 months’ worth of 2019 or $20,833 per individual, whichever is less across all businesses.

  • In particular, C-corporation owner-employees are capped by the amount of their 2019 employee cash compensation and employer retirement and health insurance contributions made on their behalf.

  • S-corporation owner-employees are capped by the amount of their 2019 employee cash compensation and employer retirement contributions made on their behalf, but employer health insurance contributions made on their behalf can’t be separately added because those are already included in employee cash compensation.

  • Schedule C and F filers are capped by the amount of their owner compensation replacement, calculated based on 2019 net profit.

  • General partners are capped by the amount of their 2019 net earnings from self-employment (reduced by claimed section 179 expense deduction, unreimbursed partnership expenses, and depletion from oil and gas properties) multiplied by 0.9235.

  • For self-employed individuals, including Schedule C or F filers and general partners, retirement and health insurance contributions are included in their net self-employment income and therefore cannot be separately added to their payroll calculation.

• Exemption due to Compliance with COVID-Related Guidance. A borrower must provide copies of applicable COVID Requirements or Guidance for each business location when relying on the FTE exemption related to compliance with COVID-Related guidance.

See the Interim Final Rule HERE.