June 22nd Interim Guidelines Pave The Approach
With one other day comes one other new PPP rule pronouncement. Late within the afternoon on June 22nd the SBA launched new steerage titled Interim Closing Rule on Revisions to loan Forgiveness Interim Closing Rule and SBA loan Overview Procedures Interim Closing Rule. A lot has been manufactured from all of the exercise surrounding the PPP over the past two to a few weeks. New guidelines, functions, and steerage really feel like a close to every day prevalence at this level.
The brand new Interim Closing Rule launched on the 22nd serves to tie a pleasant bow round all these adjustments and formally codify them into the Interim Closing Guidelines governing loan forgiveness and the lender evaluate course of.
Primarily, the June 22nd Interim Closing Rule formally updates the language of the Closing Guidelines to incorporate the adjustments enacted through the PPP Flexibility Act of 2020. This contains issues just like the 24-week extension, the 60% rule, the prolonged loan cost deferral interval, the extension of the “employee rehire amnesty” interval, the brand new worker discount exception to forgiveness reductions, and the brand new EZ Forgiveness Software.
Whereas the June 22nd Interim Closing Rule is especially an replace for the adjustments to the PPP we already find out about, it does affirm some issues we thought we knew, and we are able to glean one or two new bits of data from it.
These issues are first enumerated beneath, after which mentioned in additional element:
- Debtors can file for forgiveness throughout the 24-week interval instantly after they’ve spent ample quantities to advantage this.
- Forgiveness for homeowners (together with S or C Company shareholders) shall be restricted to 15.385% for the 8-week interval or 20.833% for the 24-week interval of their 2019 compensation, and in sure different methods.
- State required closings, and the lack to rehire or discover certified alternative staff shall be interpreted in a borrower-friendly method.
We’re presenting a free 30 minute webinar on the adjustments led to by the brand new Interim Closing Guidelines on Friday June 26th at 1:00 p.m. EDT. You’ll be able to electronic mail firstname.lastname@example.org and put the phrase “Friday” within the topic line to obtain an invitation for the webinar.
I shall be joined by Brandon Ketron, JD, CPA, LL.M. and Kevin Cameron, CPA, and thank them for his or her tireless efforts to grasp and clarify these guidelines and to take care of the spreadsheet that’s now being utilized by lots of of CPAs and small companies.
Additional dialogue on these developments are as follows:
1. Already spent your whole loan proceeds? Go forward and file for forgiveness now.
One query that arose when it turned clear the size of the lined interval was going to be prolonged was what do debtors who want greater than 8 – however lower than 24 – weeks to spend a ample quantity to have full forgiveness do? Do they should look ahead to the 24 weeks to finish earlier than they file for forgiveness or might they file as quickly as the cash is spent?
This was partially answered once we realized that debtors who acquired their loan previous to June 5th might elect to stick with the 8-week lined interval versus being compelled to go the complete 24 weeks. These debtors might select to submit their loan forgiveness software on the time line they initially anticipated.
However what of these debtors who used the 24-week lined interval? Would they actually have to attend all 6 months earlier than submitting for forgiveness?
With the June 22nd Interim Closing Rule we now know that the reply to that query is not any.
The New Interim Closing Rule reads as follows:
- b. When should a borrower apply for loan forgiveness or begin making funds on a loan?
- A borrower may submit a loan forgiveness software any time on or earlier than the maturity date of the loan – together with earlier than the tip of the lined interval – if the borrower has used all the loan proceeds for which the borrower is requesting forgiveness.
As long as a borrower has spent all of their loan proceeds, they are going to have the ability to submit an software for forgiveness at any level.
Debtors ought to be aware that in the event that they lowered any worker’s wages by greater than 25 p.c, they need to account for the surplus wage discount for the complete 8-week or 24-week lined interval. Moreover, if a borrower doesn’t apply for forgiveness inside 10 months after the final day of the lined interval then the loan will now not be deferred and the borrower should start making funds.
Permitting debtors to file for forgiveness previous to the tip of their lined interval was an vital resolution by the SBA. Many companies are desperate to get these PPP loans off their books to allow them to return to “normal” accounting and financing procedures. Permitting companies to do that is congruent with the SBA’s and the Treasury’s obvious objective to get as many of those PPP loans forgiven as fast as doable.
There additionally seems to be no “strings attached” after a borrower applies for loan Forgiveness that will require the borrower to take care of worker headcount stage all through the whole 24 week interval. If the borrower maintained the identical quantity staff and the identical pay price for these staff by means of the date it information the forgiveness software (or restored worker headcount ranges or pay charges utilizing the FTE Discount Secure Harbor on such date) there could be no discount within the quantity of loan forgiveness.
2. Confirming what we thought we knew – Caps on quantities of loan forgiveness for proprietor worker’s and self-employed particular person’s payroll compensation.
An amazing deal of effort and time has been dedicated to making an attempt to grasp how “owner employees” could be handled by the forgiveness guidelines. Previous to the month of June, there was just about no steerage on these points.
On June 11th, unbiased contractors lastly obtained the excellent news that the quantity of automated forgiveness they might be eligible for could be calculated through the very same method that their unique loan quantity was calculated. This primarily meant that any unbiased contractor who didn’t pay wages to a different worker would have the whole thing of their loan robotically forgiven in the event that they use the 24-week interval. Whereas this was nice for unbiased contractors, it nonetheless left different lessons of “owner employees” at the hours of darkness concerning what bills they might embrace of their forgiveness calculations.
The discharge of the revised Forgiveness Software on June 16th lastly answered a few of these lingering questions, however the June 22nd Interim Closing Rule formally confirms them.
The Interim Closing Rule states:
- “[t]he amount of loan forgiveness requested for owner-employees and self-employed individuals’ payroll compensation is capped at 2.5 months’ worth (2.5/12) of 2019 compensation (i.e., approximately 20.83 percent of 2019 compensation) or $20,833 per individual, whichever is less, in total across all businesses. In particular, C-corporation owner-employees are capped by the amount of their 2019 employee cash compensation and employer retirement and health insurance contributions made on their behalf. S-corporation owner-employees are capped by the amount of their 2019 employee cash compensation and employer retirement contributions made on their behalf, but employer health insurance contributions made on their behalf cannot be separately added because those payments are already included in their employee cash compensation. Schedule C or F filers are capped by the amount of their owner compensation replacement, calculated based on 2019 net profit. General partners are capped by the amount of their 2019 net earnings from self-employment . . . multiplied by 0.9235. For self-employed individuals, including Schedule C or F filers and general partners, retirement and health insurance contributions are included in their net self-employment income and therefore cannot be separately added to their payroll calculation.”
It’s evident that the SBA’s objective in distinguishing between all these totally different self-employed people, proprietor staff, sole proprietors, and unbiased contractors is to forestall debtors from double dipping on forgiveness. The SBA doesn’t wish to permit forgiveness for bills that weren’t already included within the borrower’s payroll calculation on which their loan quantity is predicated.
This was all effectively and good, however the SBA has did not explicitly outline what all of those totally different phrases imply. We all know that unbiased contractors can not embrace their very own retirement or medical insurance contributions, however what’s the distinction between an unbiased contractor who information a schedule C and a C-corporation owner-employee?
Whereas this pronouncement does present a component of readability that self-employed debtors have been yearning for some time, the SBA nonetheless has loads of room to make clear its positions and extra precisely outline every of those totally different lessons of staff.
There is no such thing as a point out of limiting retirement plan contributions attributable to the shareholder worker of an organization to 20.833% of 2019 contributions for such shareholder, which is offered for within the EZ forgiveness software. Hopefully, this limitation is an error that shall be deleted from the EZ software.
3. Extra meat on the bones for the brand new worker discount exceptions created by the Flexibility Act.
The unique CARES Act allowed debtors to keep away from reductions in forgiveness for a lowered
variety of staff in comparison with the “pre-virus” interval within the type of 4 exemptions: (1) the worker rejected a rehire provide; (2) the worker was fired for trigger throughout the lined interval; (3) the worker requested a discount in hours; and (4) the worker voluntarily resigned.
The Flexibility Act added two extra, comparatively liberal, exemptions in to the combo: (1) the lack to rent “similarly qualified” people to fill a spot; and (2) the lack to function as a consequence of restrictions from authorities companies.
The brand new exemptions actually assist debtors keep away from forgiveness reductions however most of the similar questions debtors had in regards to the unique 4 exemptions nonetheless stay for the 2 new ones led to by the Flexibility Act. How does an employer doc makes an attempt to rehire “similarly qualified individuals? How much do orders from an agency need to affect my business to qualify as an “inability to operate?”
The June 22nd Interim Closing Rule, fortunately, helps to reply just a few of these questions:
- “Debtors are exempted from the loan forgiveness discount . . . if the borrower is ready to doc in good religion the next: (1) an lack of ability to rehire people who had been staff of the borrower on February 15, 2020; and (2) an lack of ability to rent equally certified people for unfilled positions on or earlier than December 31, 2020. Debtors are required to tell the relevant state unemployment insurance coverage workplace of any worker’s rejected rehire provide inside 30 days of the worker’s rejection of the provide. The paperwork that debtors ought to keep to point out compliance with this exemption embrace, however aren’t restricted to, the written provide to rehire a person, a written document of the provide’s rejection, and a written document of efforts to rent a equally certified particular person.
- Debtors are additionally exempted from the loan forgiveness discount . . . if the borrower is ready to doc in good religion an lack of ability to return to the identical stage of enterprise exercise because the borrower was working at earlier than February 15, 2020, as a consequence of compliance with necessities established or steerage issued between March 1, 2020 and December 31, 2020 by the Secretary of Well being and Human Providers, the Director of the Facilities for Illness Management and Prevention (CDC), or the Occupational Security and Well being Administration associated to the upkeep of requirements for sanitation, social distancing, or another employee or buyer security requirement associated to COVID-19 (COVID Necessities or Steering). Particularly, debtors that may certify that they’ve documented in good religion that their discount in enterprise exercise throughout the lined interval stems immediately or not directly from compliance with such COVID Necessities or Steering are exempt from any discount of their forgiveness quantity stemming from a discount in FTE staff throughout the lined interval. Such documentation should embrace copies of relevant COVID Necessities or Steering for every enterprise location and related borrower monetary information. The Administrator, in session with the Secretary, is decoding the above statutory exemption to incorporate each direct and oblique compliance with COVID Necessities or Steering, as a result of a major quantity of the discount in enterprise exercise stemming from COVID Necessities or Steering is the results of state and native authorities shutdown orders which are based mostly partially on steerage from the three federal companies.”
It’s fascinating that the separate exemptions for (1) an worker who rejected a rehire provide, and (2) the exemption for an lack of ability to rent equally certified people, have primarily been merged into one single exemption which now seems to require that the employer first try to rehire a former worker who beforehand held the place, after which unsuccessfully try to seek out equally certified people after the previous worker has rejected the provide, or it’s clear that the previous worker will not be obtainable.
Concerning the exemption for an lack of ability to function as a consequence of compliance with COVID Necessities or Steering, it’s good to see that the SBA is permitting companies not directly affected by these orders to assert this exemption. When the exemption was first created many debtors questioned if they might solely declare the exemption in the event that they had been affected by steerage from one of many companies really listed (the Secretary of Well being and Human Providers, the Director of the Facilities for Illness Management and Prevention (CDC), or the Occupational Security and Well being Administration) as a result of it does appear to be a very exhaustive checklist. Fortunately, the SBA has acknowledged that many state and native authorities are imposing restrictions based mostly on steerage from these companies, so the SBA is keen to permit debtors affected by these oblique impacts to nonetheless declare the exemption. Debtors will nonetheless want to have the ability to cite to the precise COVID Requirement or Steering from the aforementioned companies that both immediately or not directly affected them.
Be looking out for added exemptions added sooner or later. These have been described as “get out of jail free cards” for debtors who would in any other case be topic to forgiveness reductions for have suffered reductions in staff.
General, the June 22nd Interim Closing Rule will not be earth shattering within the PPP world, but it surely is a crucial a part of the puzzle that has been the final 2 to three weeks. PPP steerage is continually evolving and it has been fascinating to see the SBA and Treasury make the most of a form of “legislate as you go” technique. Proceed to remain plugged in as this system evolves. Additional clarification and steerage is at all times simply across the nook.