SBA Releases FAQs Addressing PPP Loan Forgiveness

By Joseph Jalbert August 7, 2020

For those of you who have been repeatedly hitting the refresh button on your web browser for the past several weeks in anticipation of additional guidance on Paycheck Protection Program (“PPP”) loan forgiveness, wait no longer: on Tuesday, the SBA, in consultation with Treasury, released a fresh set of frequently asked questions (twenty-three of them, to be exact) that seek to answer PPP borrowers’ most burning questions about the loan forgiveness process. Before putting your fear of developing trigger finger behind you for good, however, you should know that many of the questions within the FAQs were previously addressed in the loan forgiveness applications and related instructions.  Nevertheless, we have some new information that will hopefully clear up some points of confusion for borrowers. While we won’t aim to address every question contained in the FAQs, we’ll take a look at some of the more significant questions within each of the four sections into which they were divided.

General loan forgiveness

There are three questions contained within this section. Of note, the third question affirms that as long as a borrower submits a forgiveness application within ten months of the end of the covered period, the borrower is not required to make any loan payments until the forgiveness amount is remitted to the lender by the SBA. It goes without saying that a borrower does not need to make any payments if the loan is fully forgiven. If that’s not the case, any remaining balance on the loan, plus accrued interest, needs to be paid by the borrower on or before the loan’s maturity date.

Loan forgiveness payroll costs

This is where things start to get a little more interesting. This section contains eight questions that address various aspects of – you guessed it – payroll costs. The first three questions tackle payroll costs that are paid or incurred outside of the covered (or alternative covered) period and which of those costs are eligible for loan forgiveness. In short, payroll costs incurred during the covered (or alternative covered) period but paid after the covered (or alternative covered) period are eligible for loan forgiveness as long as they are paid on or before the next regular payroll date. Similarly, payroll costs incurred prior to the covered (or alternative covered) period but paid during the covered (or alternative covered) period are eligible for loan forgiveness.

Sidebar: It seems the SBA has made sport of dodging the question as to whether borrowers can capture more than 8 or 24 weeks’ worth of payroll costs in their forgiveness calculation (this concept was touched on previously by Stan Rose in a June 5 article). We may never have a clear answer on this, and borrowers considering inclusion of more than 8 or 24 weeks’ worth of payroll costs should also consider what a higher priority for their business is: risk mitigation or forgiveness maximization.

Questions 6 and 7 of this section confirm that employer expenses for group health care benefits and employee retirement benefits that are paid or incurred by the borrower during the covered (or alternative covered) period generally qualify for forgiveness (note that such expenses as they relate to owners are addressed separately in question 8 of this section). One important clarification here: forgiveness is not provided for employer expenses for group health care benefits or employer contributions for retirement benefits accelerated from periods outside the covered (or alternative covered) period.

Question 8 of this section addresses how eligible owner compensation is determined and provides examples for owners of C and S corporations, self-employed Schedule C (or Schedule F) filers, general partners and LLC owners. The examples are fairly comprehensive and are beyond the scope of this article; therefore, readers are advised to refer directly to the noted question in the FAQs.

Loan forgiveness nonpayroll costs

This section contains seven questions and includes similar themes with respect to costs incurred or paid outside of the covered period as were discussed concerning payroll costs. Question 6 of this section attempts to clarify an area that has been the source of significant confusion: which transportation-related expenses are eligible for forgiveness? According to the FAQ, only “transportation utility fees” assessed by state and local governments are eligible for forgiveness. These fees serve as a financing mechanism that treats the transportation system like a utility, where residents and businesses pay fees based on their use of the system, and are not widely used.

Given this narrow definition of qualifying transportation expenses, fuel for business vehicles would not qualify; however, in a recent AICPA Town Hall, representatives from the AICPA referred to an April 14 Interim Final Rule from the SBA which includes gas used for the business vehicle of a Schedule C filer as an eligible use of proceeds. While the representatives from the AICPA felt that fuel for business vehicles for any borrowers would be eligible for forgiveness despite its notable absence from the FAQs, more definitive guidance on this topic would be helpful.

Loan forgiveness reductions

This section contains five questions to assist borrowers in determining the appropriate reductions to loan forgiveness based on certain full-time equivalent (FTE) and salary/wage reductions.  Question 3 of this section clarifies that employees who made more than $100,000 on an annualized basis in 2019 (i.e. those employees listed in Table 2 of the PPP Schedule A Worksheet) should be included in the FTE Reduction Exceptions line in Table 1 of the PPP Schedule A Worksheet. Question 4 of this section explains how borrowers should calculate the reduction in their loan forgiveness amount due to reductions in employee salaries and hourly wages and provides several examples. As with eligible owner compensation, the guidance here is fairly comprehensive and readers are therefore encouraged to refer to the noted question in the FAQs.

Final thoughts

It remains to be seen whether this is the last of the loan forgiveness guidance we should expect to see from the SBA. The answer will likely be dictated, at least in part, by the nature of any PPP-related provisions contained within the next coronavirus relief package. In the meantime, borrowers looking to put all of this past them and submit their forgiveness application as soon as possible have some additional clarity as to how the forgiveness process is going to work. Borrowers planning on taking advantage of the additional time available to them may benefit from additional future guidance…or not.  Either way, maintaining an open dialogue with your lenders and advisors will help to ensure you’re on the right path to forgiveness.

For more information or a discussion on how this may impact you, please contact Joe Jalbert or your BNN advisor at 800.244.7444.