PPP forgiveness guidance issued as Congress mulls changes
Treasury and the U.S. Small Business Administration (SBA) released new Paycheck Protection Program (PPP) guidance Friday night that provided some clarity on several loan forgiveness questions but didn’t address the two parts of PPP that arguably have generated the most concerns among the millions of small businesses and other entities that have received funding.
Two new interim final rules issued late Friday build upon the loan forgiveness application and instructions released May 15 but they don’t make changes to either the eight-week period during which PPP funds must be spent to qualify for forgiveness or the rule requiring PPP borrowers to spend at least 75% of the funds on payroll costs to qualify for full loan forgiveness.
Those two issues are the focus of multiple bills being considered in Congress.
The Senate could vote as early as this week on a bill that would double the loan forgiveness period to 16 weeks. The House is expected to vote this week on standalone legislation that would extend the loan forgiveness period to as long as 24 weeks and also eliminate the rule requiring PPP borrowers to spend at least 75% of the funds on payroll costs to qualify for full loan forgiveness. A separate Senate bill would also expand the loan forgiveness period to 24 weeks and eliminate the 75% rule.
Critics of the eight-week loan forgiveness period argue that it isn’t flexible enough for businesses that have dealt, and in many cases continue to deal, with state and locally mandated stay-at-home orders that have kept many types of businesses closed or operating at significantly reduced capacity. Critics of the 75% rule argue that it does not do enough to accommodate businesses whose employees haven’t been able to work because of government-imposed business closures.
Through May 23, the SBA approved more than 4.4 million PPP loans totaling more than $511 billion. About $138 billion in PPP funds remained available for additional lending as of May 23.
While the two proposed bills making their way through Congress would have an impact on loan forgiveness, the two new interim final rules released Friday are the most recent authoritative guidance. One addresses requirements for loan forgiveness (read PDF) and the other outlines PPP loan review procedures and related borrower and lender responsibilities (read PDF).
The 26 pages of loan forgiveness requirements guidance, a substantial portion of which mirrors the instructions to the PPP loan forgiveness application released on May 15, answer more than a dozen questions related to the loan forgiveness process, which payroll and nonpayroll costs are eligible for forgiveness, and how various scenarios affect the amount of loan forgiveness for which a borrower qualifies. Highlights include:
The 19-page interim rule on PPP review procedures and related borrow and lender responsibilities covers procedural details. Most notably the rule:
Congress created the PPP as part of the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136. The legislation authorized Treasury to use the SBA’s 7(a) small business lending program to fund loans of up to $10 million per borrower that qualifying businesses could spend to cover payroll, mortgage interest, rent, and utilities. PPP borrowers can qualify to have the loans forgiven if the proceeds are used to pay certain eligible costs. However, the amount of loan forgiveness will be reduced if less than 75% of the funds are spent on payroll over an eight-week loan forgiveness period.
Congress established the PPP to provide relief to small businesses during the coronavirus pandemic as part of the CARES Act. PPP funds are available to small businesses that were in operation on Feb. 15 with 500 or fewer employees, including not-for-profits, veterans’ organizations, Tribal concerns, self-employed individuals, sole proprietorships, and independent contractors. Businesses with more than 500 employees in certain industries also can apply for loans.
The AICPA’s Paycheck Protection Program Resources page houses resources and tools produced by the AICPA to help address the economic impact of the coronavirus.
For more news and reporting on the coronavirus and how CPAs can handle challenges related to the outbreak, visit the JofA’s coronavirus resources page or subscribe to our email alerts for breaking PPP news.
—Jeff Drew (Jeff.Drew@aicpa-cima.com) is a JofA senior editor.
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