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Chicago businesses that received a loan from the Paycheck Protection Program (PPP) have been awaiting guidance on loan forgiveness. Since the PPP was launched quickly to distribute desperately needed business funds, the traditional process for developing and publishing guidance has been bypassed. This has resulted in a piecemeal approach to providing information on loan forgiveness and even the delayed publication of the PPP Loan Forgiveness application. Naturally, borrowers were relieved to have some direction but found some questions were left unanswered. Just before the Memorial Day weekend, on May 22, 2020, The Small Business Administration (SBA) and Treasury issued an update to the Interim Final Rule (the rule) which offers new guidance. Several topics were addressed including offers to rehire employees, forgiveness limits for the self-employed, and information on the forgiveness process. To help clients, prospects and others, Selden Fox has provided a summary of essential points below.

PPP Loan Guidance Update

  • Loan Forgiveness Process – While the SBA stated they will issue a separate update on loan forgiveness; new information was provided about the overall process. The first step is for the borrower to complete and submit the loan forgiveness application to the lender. If the lender determines the borrower is entitled to forgiveness, then they request repayment from the SBA. The lender has 60 days to render a decision. If the SBA accepts the lenders’ decision, they will remit the forgiveness amount along with accrued interest no later than 90 days after the decision is made. However, if the SBA determines the borrower was not eligible to receive a loan based on the established criteria, then the borrower will be ruled ineligible to receive loan forgiveness.
  • Application Deadline – Many borrowers have been seeking guidance on the deadline for submitting their loan forgiveness application. Unfortunately, the Rule does not provide specific details about when the borrowers is required to submit their application. Borrowers will need to wait to find out when applications have to be submitted.
  • Payments to Furloughed Employees – There has been some question about an employer’s ability to receive forgiveness for compensation including salary, wages, and commissions, to furloughed employees. Yes, the Rule states that as long as an employee’s total compensation does not exceed $100,000 on an annualized basis, additional wages such as hazard pay, and bonuses are eligible for loan forgiveness.
  • Advance Payment of Mortgage Interest – Many borrowers have wanted to know if advance payments of mortgage interest can be included as a non-payroll expense for forgiveness. The answer is no. The rule explicitly prohibits these expenses from being eligible for forgiveness.
  • Offers to Rehire Employees – The recent guidance around whether employers who successfully attempt to rehire laid off workers is reiterated. However, the Rule provides additional information on the conditions under which loan forgiveness would not be impacted. This includes a certification the borrower made a good faith written offer to rehire the employee during the covered period, it offer was for the same salary, wages and hours earned on the employee’s last day of employment, and it was rejected. Finally, the borrower must inform the state unemployment insurance office of the rejected offer within 30 days.
  • Loan Forgiveness Limits for the Self Employed – The Rule also clarified there are limits to the amount of loan forgiveness available to owner-employees and the self -employed. Specifically, payroll compensation can be no more than the lesser of 8/52 of 2019 compensation or $15,385 per individual, in total, across all businesses. Specifically, owner-employees are limited to the amount of their 2019 cash compensation and employer retirement and healthcare contributions. Schedule C filers are limited by the amount of owner compensation determined by 2019 net profit. Finally, general partners are limited to the amount of their 2019 net earnings from self-employment times .9235. There is no additional forgiveness for the latter groups with respect to healthcare and retirement contributions because these expenses are paid out of net self-employment income.

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While it appears, there are more puzzle pieces yet to be placed on the table, the recently updated Rule provides important information for borrowers. As the covered period for some Chicago businesses quickly comes to an end, it is essential to review expenses and payroll costs to ensure you are in the best position possible. If you have questions about the information outlined above or need assistance with another COVID-19 issue, Selden Fox can help. For additional information call us at 630.954.1400 or click here to contact us. We look forward to speaking with you soon.

Brian Eagan

Brian Eagan specializes in providing high level interim CFO and controller work for small to medium size businesses, including non-profit and local government agencies. In this role, Brian makes himself highly accessible to clients by phone and e-mail, in addition to appreciating the importance of performing some of these services onsite at clients’ offices.