New Interim Rule: PPP Borrowers Can Apply for Forgiveness Before Covered Period Ends

Today the SBA released a new Interim Final Rule to address specific loan forgiveness procedures. Most of these procedures were addressed in the ATKG news release from last week, but the new Interim Final Rule clarified an important issue. The Paycheck Protection Flexibility Act of 2020 introduced a 24-week Covered Period, which left many borrowers wondering if they would have to wait until the 24-week period was over to apply for loan forgiveness. (Note: Borrowers that received PPP loans before June 5th may use either the original 8-week Covered Period or the new 24-week Covered Period.) 

The Interim Final Rule released today explained that a PPP borrower may apply for loan forgiveness before the Covered Period is over if such borrower has used all the loan proceeds. 

Reduction in Employee Salaries

Recall that loan forgiveness will be reduced if any employee’s salary during the Covered Period is decreased by more than 25% from his or her salary during the first quarter of 2020. The new Interim Final Rule states that if a borrower applies for loan forgiveness before the Covered Period is over and reduces employees’ salaries by more than 25%, the borrower must account for the excess salary reduction for the full 8-week or 24-week period as prescribed in the examples provided. The following summarizes these examples:

• A borrower is using a 24-week covered period. During the first quarter of 2020, this borrower paid a full-time employee a weekly salary of $1,000. During the Covered Period, the borrower reduced the same employee’s salary to $700 per week. The employee continued to work on a full-time basis during the Covered Period. 

• In this case, the employee’s weekly salary was reduced by $300, or 30%. Therefore, loan forgiveness must be reduced by the difference between the 30% actual reduction and the 25% permitted reduction. This would amount to a $50 ($300 less $250) reduction for every week during the Covered Period.

• The borrower seeking forgiveness would list $1,200 as the salary/hourly wage reduction for that employee (the $50 weekly reduction multiplied by 24 weeks). If the borrower applies for forgiveness before the end of the covered period, it must account for the salary reduction for the full 24-week covered period (totaling $1,200).  

Every PPP borrower must analyze the specific circumstances of its PPP loan to determine whether applying for early loan forgiveness is advantageous.

Recommendations

Borrowers have 10 months following the last day of the Covered Period to apply for loan forgiveness. New rules are being released frequently so our best advice is to not rush into the forgiveness application process. Consult with your ATKG advisor to determine the best course of action.

Conclusion

As always, ATKG is staying on top of the ever-changing PPP procedures and will keep you informed as new guidance is released. We value the trust you place in us to help you address both the financial opportunities and challenges before you.  For our latest news on the financial impact of COVID-19, visit ATKG’s Coronavirus Newsroom.