The Small Business Administration (SBA), in consultation with the Department of the Treasury released a set of “Frequently Asked Questions” (FAQs) addressing loan forgiveness issues under the Paycheck Protection Program (PPP) as administered by the Small Business Administration (SBA).
Borrowers and lenders may rely on the guidance provided in this document as SBA’s interpretation, in consultation with the Department of the Treasury, of the CARES Act, the Flexibility Act, and the Paycheck Protection Program Interim Final Rules (“PPP Interim Final Rules”)
Newly Released SBA FAQ Sections & Highlights
General Loan Forgiveness FAQs:
This section contains three FAQs. The first one clarifies that sole proprietors, independent contractors, and self-employed individuals who had no employees at the time of the PPP loan application and did not include any employee salaries in the computation of average monthly payroll in the Borrower Application Form automatically qualify to use the PPP Loan Forgiveness Application Form 3508EZ.
Loan Forgiveness Payroll Costs FAQs:
This section contains eight FAQs here are some highlights from this section.
Question No. 4 explains that the gross amount before deductions for taxes, employee benefits payments, and similar payments, or the net amount paid to employees should be used when calculating cash compensation.
Question No. 5 gives more detail on Payroll costs covered by the loan forgiveness, which include all forms of cash compensation paid to employees, including tips, commissions, bonuses, and hazard pay. Note that forgivable cash compensation per employee is limited to $100,000 on an annualized basis.
Question No. 8 explains how is the amount of owner compensation that is eligible for loan forgiveness determined. The answer explains that the amount of compensation of owners who work at their business that is eligible for forgiveness depends on the business type and whether the borrower is using an eight-week or 24-week Covered Period. It also provides examples for owners of C and S corporations, self-employed Schedule C (or Schedule F) filers, general partners, and LLC owners. An owner-employee is defined as someone who is both an owner and an employee of a C corporation. The term was previously referred to in the PPP loan forgiveness application but not defined. Also addressed are partial pay periods, group health care benefits, and two questions related to payroll costs that were incurred or paid outside of the eight-week or 24-week covered periods.
Loan Forgiveness Nonpayroll Costs FAQs:
This section includes seven FAQs which address rent, lease, and mortgage payments, utilities, and transportation.
Question No. 6 provides that payments of transportation utility fees assessed by state and local governments are eligible for loan forgiveness. Also answered are two questions related to nonpayroll costs that were incurred or paid outside of the eight-week or 24-week covered periods and whether the Alternative Payroll Covered Period for payroll costs also applies to nonpayroll costs (it doesn’t).
Loan Forgiveness Reductions FAQs:
This section includes five FAQs which give more clarity on FTE employees, seasonal employers, and alternative payroll.
Question No. 4 addresses how calculations should be made by borrowers for the reduction in their loan forgiveness amount arising from reductions in employee salary or hourly wage. Three examples of the salary/hourly wage reduction are included which provide more insight.
Download the Full FAQ’s Document Click Here
The AICPA will provide more analysis and insights into the FAQs on Thursday, August 6th during its next PPP town hall, which will start at 3 p.m. ET.
“The FAQs have addressed a number of the outstanding questions, but there are still some gray areas,” said Lisa Simpson, CPA, CGMA, director–Firm Services for the Association of International Certified Professional Accountants. “In addition, there are still remaining open items such as how will FTE reductions work if applying for forgiveness before the end of the covered period. We will discuss all of this in greater detail on Thursday’s town hall.”
Through July 31, the PPP has funded nearly 5.1 million forgivable loans totaling more than $521 billion to help small businesses and other eligible entities impacted by the recession sparked by the COVID-19 pandemic. More than $130 billion is still available in the PPP, which has an Aug. 8 deadline for applications to be approved by SBA. Congress is currently considering a follow-up to PPP that would provide more targeted assistance to small businesses.
Quick Summary of the Paycheck Protection Program
The Paycheck Protection Program (PPP) is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll. Created by Congress as part of a $2 trillion dollar Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136. The PPP provides small businesses with funds to pay up to 8 weeks of payroll costs including benefits. These funds can also be used to pay interest on mortgages, rent, and utilities.
The Paycheck Protection Program prioritizes millions of Americans employed by small businesses by authorizing up to $659 billion toward job retention and certain other expenses. Small businesses and eligible nonprofit organizations, Veterans organizations, and Tribal businesses described in the Small Business Act, as well as individuals who are self-employed or are independent contractors, are eligible if they also meet program size standards.