The SBA filed its 19th Interim Final Rule (IFR), scheduled to be published on Friday June 19th, focusing on revisions made from Paycheck Protection Program Flexibility Act (Flexibility Act) signed into law on June 5th. Also released yesterday, was a revised Loan Forgiveness Application and EZ Version. Significant updates are highlighted below:
Owner Compensation:
- Eight weeks’ worth (8/52) of 2019 net profit (up to $15,385) for an eight-week covered period;
OR
- 2.5 months’ worth (2.5/12) of 2019 net profit (up to $20,833) for a 24-week covered period.
This means there will be full forgiveness for any self-employed, freelancers, or independent contractor who took the maximum loan amount based on 2.5 times their 2019 monthly income.
As with most SBA/Treasury guidance, we receive some answers, however we are left with other questions. The guidance mentions “owner compensation replacement for individuals with self-employment income who file a Schedule C or F”, however it doesn’t mention the owner-employees (S-Corp owners) and also doesn’t mention general partners. Based on the revised Schedule A on the application, it appears that owner-employees, self-employed individuals, and general partners would all be subject to the $20,833 cap.
Employee Compensation:
- $100,000/52 * 8 (a max of $15,385 per individual);
OR
- $100,000/52 *24, making the new maximum forgiveness cap $46,154 per individual for 24 weeks.
Also included in either the 8 or 24 week period is covered benefits for employees, including:
- Health care expenses
- Retirement contributions
- State taxes paid by the employer, including unemployment insurance premiums
Non-payroll expenses:
Loan forgiveness amounts for non-payroll expenses have also been extended to 24 weeks. This includes:
- Covered mortgage obligations: payments of interest (not including any prepayment or payment of principal) on any business mortgage obligation on real or personal property incurred before February 15, 2020.
- Covered rent obligations: business rent or lease payments pursuant to lease agreements for real or personal property in force before February 15, 2020.
- Covered utility payments: business payments for a service for the distribution of electricity, gas, water, transportation.
The incurred or paid rule is still applicable.
Applications for Loan Forgiveness:
The SBA released two new applications, a revised full loan application and EZ Version.
The new EZ version applies to borrowers that:
- Are self-employed and have no employees;
OR
- Did not reduce the salaries or wages of their employees by more than 25%, and did not reduce the number or hours of their employees;
OR
- Experienced reductions in business activity as a result of health directives related to COVID-19, and did not reduce the salaries or wages of their employees by more than 25%.
EZ application is simpler with less documentation. Details regarding the use of the new EZ application can be found in the instructions for the application form.
$146B still remains from the second round of funding for the PPP Loan program. Businesses must apply by June 30, 2020.
Also, as of Monday, June 15, 2020, the Economic Injury Disaster Loans (EIDL) application opened again to all businesses. The loans are capped at $150,000 and can be used in conjunction with PPP Loan as long as the proceeds are not used for the same expenses. Terms are up to 30 years at 3.75% (2.75% for nonprofits).
As always, the PPP Team is here to answer any questions via ppp@wheelercpa.com, and additional PPP Loan Forgiveness Resources are available here.