ALL YOU NEED TO KNOW ABOUT THE SBA ISSUES FAQS ON PPP LOAN FORGIVENESS

The PPP was initially established in April as part of the CARES Act, to help businesses that suffered as a result of the coronavirus and subsequent shutdowns around the country. The programs have attractive features like low-interest loans & forgivable loans for providing flexibility for all small businesses. Now SBA (Small Business Association) has updated their FAQs on Loan Forgiveness on August 4th. The government has prepared to accept all the documentation submitted by the small business community as there have been a lot of questions arising ever since it was announced. 

This update is for all the businesses who have successfully updated their documents required under PPP before 30th June,2020 and sheds light on the previously issued guidance by the government to assist all the borrowers in preparing their PPP application. 

Here’s a quick major highlight of the FAQs:

• Expenses incurred for group health and retirement benefits are not eligible cost under PPP

• A clarity on transportation costs incurred are only limited to transport utility fees that are assessed by the State Government & Local Government.

• Under the CARES ACT, the government has clarified that loan forgiveness reduction calculation can only be done for  those employees whose salary/hourly wages are reduced more than 25%.

On the contrary, the HEALS ACT, proposed by the Republicans, also has good features for borrowers with less than $2 million loan amounts who would be able to proceed without submitting paperwork. This also includes all the expenses that are incurred for personal protective equipment & renovations to make business safer. Whereas, this is exactly opposite to the current CARES ACT, where the borrowers have to submit a lengthy application for the government to consider them under this program. Under this program, the small business owners with less than $1.5 million loan would have to certify the spend only on the eligible expenses rolled out under this program. For all the larger loans amount above $2 million, the congress have proposed in the bill that SBA would create a free public Loan Forgiveness Calculator or identify and ‘certify a third party to enable small business owners to use this feature. However, experts have criticised the same but the legislation is also backed by a number of good reputed organizations including National Association of Realtors, National Federation of Independent Business and the American Institute of CPAs.

Amidst of these discussions, all the loans topping above $2 million would be audited as per the same procedure of that below $2 million. Many business groups were expecting a much easier application process for availing the forgiveness loan benefits but the documentation part is quite much lengthy to support the application.

Let’s look at a few questions that were long waited to be answered under this act to bring clarity:

Question:  Which loan forgiveness application should sole proprietors, independent contractors, or self-employed individuals with no employees complete? 

Answer:  Sole proprietors, independent contractors, and self-employed individuals who had no employees at the time of the PPP loan application and did not include any employee salaries in the computation of average monthly payroll in the Borrower Application Form automatically qualify to use the Loan Forgiveness Application Form 3508EZ or lender equivalent and should complete that application.

Question:  Are payroll costs that were incurred during the Covered Period1 or the Alternative Payroll Covered Period but paid after the Covered Period or the Alternative Payroll Covered Period eligible for loan forgiveness

Answer:  Yes, if the payroll costs are paid on or before the next regular payroll date after the Covered Period or Alternative Payroll Covered Period.

Example:  A borrower received its loan before June 5, 2020 and elects to use a 24-week Covered Period.  The borrower’s Covered Period runs from Monday, April 20 through Sunday, October 4.  The borrower has a biweekly payroll cycle, with a pay period ending on Sunday, October 4.  However, the borrower will not make the corresponding payroll payment until the next regular payroll date of Friday, October 9.  Under these circumstances, the borrower incurred payroll costs during the Covered Period and may seek loan forgiveness for the payroll costs paid on October 9 because the cost was incurred during the Covered Period and payment was made on the first regular payroll date after the Covered Period.

Question:  For purposes of calculating cash compensation, should borrowers use the gross amount before deductions for taxes, employee benefits payments, and similar payments, or the net amount paid to employees

Answer:  The gross amount should be used when calculating cash compensation.

Question:  What expenses for group health care benefits will be considered payroll costs that are eligible for loan forgiveness?

Answer:  Employer expenses for employee group health care benefits that are paid or incurred by the borrower during the Covered Period or the Alternative Payroll Covered Period are payroll costs eligible for loan forgiveness.  However, payroll costs do not include expenses for group health care benefits paid by employees (or beneficiaries of the plan) either pre-tax or after tax, such as the employee share of their health care premium.  Forgiveness is not provided for expenses for group health benefits accelerated from periods outside the Covered Period or Alternative Payroll Covered Period. 

If a borrower has an insured group health plan, insurance premiums paid or incurred during the Covered Period or Alternative Payroll Covered Period qualify as “payroll costs,” as long as the premiums are paid during the applicable period or by the next premium due date after the end of the applicable period.  As noted, only the portion of the premiums paid by the borrower for coverage during the applicable Covered Period or Alternative Payroll Covered Period is included, not any portion paid by employees or beneficiaries or any portion paid for coverage for periods outside the applicable period.  Loan Forgiveness Payroll Costs FAQ 8 outlines the rules that apply to owner health insurance

Question:  What contributions for retirement benefits will be considered payroll costs that are eligible for loan forgiveness? 

Answer:  Generally, employer contributions for employee retirement benefits that are paid or incurred by the borrower during the Covered Period or Alternative Payroll Covered Period qualify as “payroll costs” eligible for loan forgiveness.  The employer contributions for retirement benefits included in the loan forgiveness amount as payroll costs cannot include any retirement contributions deducted from employees’ pay or otherwise paid by employees. Forgiveness is not provided for employer contributions for retirement benefits accelerated from periods outside the Covered Period or Alternative Covered Period.  Loan Forgiveness Payroll Costs FAQ 8 outlines the treatment of retirement benefits for owners, which are different from this general approach.

There are many more questions and related clarifications. Click here to download the full PDF containing all the questions answered by the SBA in the update of 4th August,2020.

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This information was sourced from The Small Business Administration (SBA)website.