SBA Releases New Guidance on How to Keep PPP Money
The SBA released guidance on how recipients of coveted Paycheck Protection Program (PPP) funds can keep the money and not pay it back. This should help both businesses that already received funds as well as those on the sidelines that delayed applying. Funds are still available, although not likely for long, and certain banks and credit unions are still taking applications.
The PPP is part of the Coronavirus Aid, Relief, and Economic Securities (CARES) Act, which President Trump signed into law on March 27, 2020. The PPP was intended to provide $600 billion to small businesses to pay employee wages and other critical business expenses. Funds are originally provided as a loan, which is forgiven if at least 75% of the funds are used for payroll and any balance for utilities, mortgage interest or rent.
Under the new guidelines, an employer must file SBA Form 3508 (Paycheck Protection Program Loan Forgiveness Application) with its lender to obtain forgiveness.
Employers must spend PPP funds within eight weeks, but the new guidelines allow some flexibility in determining when money is used for payroll. Payroll costs are considered paid when paychecks are distributed, an ACH credit transaction is originated, or the day the employee earned the pay. The borrower can use an "Alternative Payroll Covered Period" to calculate payroll costs using the eight-week period beginning with the first pay period following disbursement of PPP funds.
The SBA guidance allows for forgiveness of amounts paid to owners. Similar to employee wages, the amount paid cannot exceed $15,385 (the eight-week equivalent of $100,000 per year) per individual.
The PPP originally required an employer to maintain its workforce to allow loan forgiveness. The guidance now provides clarified exceptions as well as a new Full Time Equivalency (FTE) safe harbor provision. Exceptions include reductions for (1) positions for which the borrower made a good-faith written offer to rehire an employee that the employee rejected, (2) terminations for cause, (3) voluntary resignations, or (4) agreed upon reductions in hours. The FTE safe harbor provides that an employer can reduce its workforce as long as it is restored to the same, prior level.
Further tweaks may be coming, including possible changes to the eight-week repayment period and the 75% payroll requirement. Congress appears to be listening to business owners, who are facing significant non-payroll costs or trying to reopen but unable to get their employees to return to work.