PPP Forgiveness Updates: Forgiveness Application Released; Congress Talks Extension of Time to Spend Funds; Questions Remain

/ Freidel & Associates, LLC/

PPP Loan Application Released

Earlier this week, the Small Business Administration and the Department of the Treasury released the (initial, at least) forgiveness application under the Paycheck Protection Program (“PPP”). Major questions were answered:

  • Businesses that use a biweekly or more frequent pay schedule can elect to use an “alternative” payroll covered period that matches their payroll schedule. This would make record keeping much more simple for these businesses.

  • Full-time equivalency (FTE) is 40 hours, not the 30 hours that many had expected as used in previous SBA programs.

  • There is a FTE safe harbor for certain reductions in staffing that covers employees that:

    • Were given a good-faith written offer to return to work and declined it;

    • Were fired for cause;

    • Voluntarily resigned; or

    • Voluntarily requested a reduction in hours.

  • Mortgage interest and/or lease payments can be for either real or personal property that was covered under an agreement that was in place before February 15, 2020.

Congress Reportedly Is Considering Expanding the Amount of Time to Spend Funds for Loan Forgiveness

Much has been written about whether businesses could even spend the full amount of their PPP loans in an eight-week period following disbursal of the PPP loan. Well, reports are that Congress is considering changing the period from eight-weeks to a longer period, such as sixteen weeks, or even as long as twenty-four weeks. Most reports and sources say that this has bipartisan support. This is important because some of the earliest recipients are likely to hit the end of the eight-week period as early as May 29.

There are also other legislative “fixes” being considered, including potentially removing the floor that 75% of the funds needed to be used for payroll costs. So, a lot could change in the coming days and weeks, which makes the situation no more certain for businesses trying to decide how to spend the funds.

That said, until any of these legislative changes or “fixes” are enacted, businesses should continue to operate under existing guidance and assume that they must use 75% of the funds for payroll costs and that, if they plan to seek forgiveness, those funds must be expended within eight weeks of disbursement (or at least incurred in that time period).

Questions Remain

On top of the uncertainty that could come from Congress jumping in and changing the rules midway through the PPP, there are still questions that remain:

  • The application and guidance use the words “paid . . . and . . . incurred,” but does that mean “paid and incurred” or “paid or incurred.” If it means the latter, businesses could presumably stretch the amount of payroll that they could fit into their eight week period to include payroll incurred before the eight week period but paid during it, for instance.

  • In addition, if the business has a much higher proportion of payroll costs that other “allowable expenses,” a business could presumably pre-pay its rent or utilities in order to maximize its forgiveness, even though those are not “incurred” during the period.

    • This does not apply to mortgage interest, as the application and guidance are clear that mortgage interest cannot be prepaid.

  • However, the situation also works in the reverse: Could businesses pay back rent or mortgage interest that was incurred prior to the eight-week period during the eight-week period—if the business were behind on those obligations, for instance?

  • There are also real questions of whether “payroll costs” for owners include employer payments for health insurance and retirement contributions. Early guidance suggested that these would be disallowed, but there has not been clear guidance issued with the PPP forgiveness application.

All of this remains very fluid, much like the rollout to the PPP, which was literally changing as applications were already being received—and after a great deal of the applications were approved. This is why our recommendations remain the same: If you are not sure, you are well-served by contacting your legal, tax, and/or accounting professionals.