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Home›Banking›Paycheck Protection Program Loan Forgiveness Update | Jackson walker

Paycheck Protection Program Loan Forgiveness Update | Jackson walker

By Lisa Scuderi
March 9, 2021
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CARES Law and PPPHCE Law – Funding of the paycheck protection program

On March 27, 2020, Coronavirus Aid, Relief and Economic Security Act (CARES), providing emergency economic stimulus measures to small businesses and certain eligible beneficiaries in response to the economic distress caused by the COVID-19 pandemic, was enacted. The CARES law made available, through the U.S. Workers’ Compensation and Employment Maintenance Act, $ 349 billion in Paycheck Protection Program loans (PPP) (under the SBA 7 (a) loan program).

April 24, 2020 Paycheque Protection and Health Care Improvement Program Act (PPPHCE), which among other things amends and complements the CARES Act by increasing funding for small businesses, states, municipalities and hospitals, including an additional $ 310 billion for PPP, was enacted. The PPPHCE law has generally not changed the PPP loan eligibility requirements, application process, or loan cancellation rules, and it has not changed the SBA membership rules that apply to applicants. of PPP loans.

Authorized use of the proceeds of the PPP loan

  • Salary costs (capped at $ 100,000 on an annualized basis for each employee);
  • Costs related to maintaining collective health care guarantees during periods of paid sick, family or medical leave and insurance premiums;
  • Interest payments on any mortgage bond (principal payments excluded) incurred before February 15, 2020;
  • Rent payments, under rental contracts in effect before February 15, 2020;
  • Public services, for which the service began before February 15, 2020;
  • Interest service on other debt securities contracted before February 15, 2020; and
  • Refinancing of an SBA Economic Disaster Loan made between January 31, 2020 and April 3, 2020.

PPP loan forgiveness request and eligible costs

On May 15, 2020, the ASB published the Paycheque Protection Program Loan forgiveness request (“Application“). The application does not answer all of the questions about delivering a PPP loan, but it does provide welcome guidance on how a borrower can request a discount and the conditions that must be met in connection with such a discount. We are awaiting further advice from the SBA on loan forgiveness in the form of additional rules or FAQs that will provide clarity on many lingering questions regarding the mechanics and technical details associated with loan forgiveness.

  • Loan forgiveness requestNote: Although the SBA has published the request and mandated its use for PPP loan forgiveness, borrowers should contact their PPP lender for more information on how to submit the request and the overall forgiveness process. In addition, some PPP lenders may allow their borrowers to submit the application and supporting documents electronically.
  • Time of decision. The CARES law requires the PPP lender to make a decision on loan cancellation no later than 60 days after the date the PPP lender receives the request.
  • Eligible costs for pardon: Borrowers are eligible for the following fees rebate:
    • Salary costs incurred and paid during the Covered Period or the Alternative Payroll Period (each as defined below).
      • Commitment date: Labor costs are considered incurred on the day the employee’s salary is earned.
      • Payment date: Labor costs are considered paid on the day the paychecks are distributed or the borrower completes an ACH credit transaction.
      • Salary expenses incurred but not paid during the borrower’s last pay period of the covered period or the alternate covered period of payroll are eligible for a discount if the salary expenses are paid on or before the next date. regular payroll (otherwise, salary expenses must be paid during the covered period or the covered alternative pay period).
      • For each individual employee, the total amount of cash compensation eligible for pardon cannot exceed an annual salary of $ 100,000, prorated over the Covered Period.
      • The dollar amount for which the rebate is claimed cannot exceed 8 weeks compensation in 2019 for any owner-employee or self-employed / general partner, capped at $ 15,385 per person.
      • See Provisional Final Rule 1 for more information on calculating salary costs.
    • Non-salary costs
      • Eligible non-salary expenses:
        • Interest payments on any commercial mortgage loan on real or personal property taken out before February 15, 2020;
          • advance payments are not eligible for forgiveness
          • principal payments are not eligible for forgiveness
        • Commercial rents or rents under rental contracts for movable or immovable property in force before February 15, 2020; and
        • Commercial utility payments for an electricity, gas, water, transportation, telephone or Internet access distribution service for which the service began before February 15, 2020.
      • Eligible non-salary costs must be (i) paid during the period covered (NOT the period covered by the alternative payroll) or (ii) incurred during the Covered Period (NOT the Alternative Payroll Covered Period) and paid on or before the next Regular Invoice Date, even if the Invoice Date is later than the Covered Period.
      • Eligible non-salary costs cannot exceed 25% of the total amount of the discount.
  • Period covered for eligible remittance charges
    • Period covered: The Covered Period is the 8 week (56 day) period starting from the first date a borrower received the PPP loan proceeds (“PPP loan disbursement date“). If a borrower has received multiple disbursements of their PPP loan proceeds, the PPP loan disbursement date is the date the borrower first received a disbursement of their PPP loan proceeds. For example, if a borrower received part of their PPP loan proceeds on Monday April 20 and the remainder of the PPP loan proceeds on Thursday April 30, the first day of the Covered Period is April 20 and the last day of the period. Period covered is Sunday June 14.
    • Other period covered by payroll: Borrowers with a bi-monthly (or more frequent) pay schedule can choose to calculate eligible salary costs using the 8-week (56-day) period that begins on the first day of the borrower’s first pay period following the PPP loan disbursement date. For example, if a borrower received their first disbursement of the proceeds of a PPP loan on Monday, April 20, and the first day of their first pay period following that PPP loan disbursement date is Sunday, April 26, the first day of the period covered by the alternative payroll is April 26 and the last day of the period covered by the alternative payroll is Saturday, June 20.

Reductions in employees or wages and salaries

Borrowers should carefully review the instructions included in the application for completing the worksheet in Annex A to determine whether there will be a reduction in the amount of the loan cancellation based on a reduction in the number of full-time equivalent employees (“AND P“).

FTEs are determined based on a 40 hours week of work.

  • Exceptions for FTE reduction:
    • A borrower’s loan cancellation amount will not be reduced for a reduction in the number of FTE reductions for employees who (i) have rejected a good faith written offer from the borrower to rehire the employee during the Covered Period or the Alternative Payroll Covered Period or (ii) during the Covered Period or the Alternative Payroll Covered Period:
      • were dismissed for cause;
      • voluntarily resigned; or
      • voluntarily requested and obtained a reduction in their hours.
  • Safe Harbor FTE Reduction: A borrower is exempt from the FTE employee-based loan cancellation reduction if they (i) reduced their FTE employee levels during the period beginning February 15, 2020 and ending April 26, 2020 , and (ii) reinstated its FTE employee no later than June 30, 2020, to its FTE employee levels during the borrower’s pay period which included February 15, 2020.

Other important considerations

  • Certifications: The borrower must certify the following on the application:
    • The dollar amount requested for the pardon:
      • was used to pay expenses eligible for the rebate;
      • includes all applicable reductions due to the decrease in the number of FTEs and salary / salary reductions;
      • does not include non-salary costs greater than 25% of the amount requested; and
      • does not exceed 8 weeks of compensation in 2019 for any owner-employee or individual / independent general partner, capped at $ 15,385 per individual.
    • Recognize that if funds have been knowingly used for unauthorized purposes, the federal government may pursue the recovery of loan amounts and / or charges of civil or criminal fraud.
    • The borrower has accurately verified the payments for the eligible salary and non-salary costs for which the borrower is requesting the exemption.
    • The borrower has submitted the required documentation verifying salary costs and non-salary costs.
    • The information provided in the application and supporting documents is true and correct in all material respects and that knowingly making a false statement to obtain the forgiveness of the PPP loan is punishable by law with a maximum prison sentence of 30 years and / or a fine of not more than $ 1,000,000.
    • The tax documents submitted by the borrower to the PPP lender are consistent with those the borrower has submitted / submit to the IRS and / or the state tax or labor agency.
    • Recognition that the SBA may request additional information for the purpose of assessing the borrower’s eligibility for PPP loan and loan cancellation, and that failure of the borrower to provide the information requested by the SBA may result in a determination that the borrower was not eligible for the PPP loan or a denial of the borrower’s loan forgiveness request.
  • Record keeping: Borrowers must keep the following records for 6 years after the date the loan is canceled or paid off in full (all of which may be inspected by authorized representatives of the SBA, including its Office of the Inspector General):
    • PPP Annex A worksheet, along with supporting documentation:
      • The list of each individual employee in Table 1 of the PPP Annex A worksheet, including the calculation of the reduction in wages / hourly wages;
      • Each individual employee in Table 2 of the PPP Annex A worksheet; in particular, that each registered employee received in the same pay period in 2019 compensation at an annualized rate of more than $ 100,000;
      • All offers and refusals of employment of employees, dismissals for cause, voluntary resignations and written requests from any employee for reductions in working hours; and
      • Reduction of Safe Harbor FTEs.
    • Documents relating to the borrower’s PPP loan and PPP loan application, including documentation to support the borrower’s good faith certification of the need for the loan application and its eligibility for a loan PPP.
    • Application documents and documents demonstrating the borrower’s physical compliance with PPP requirements.


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