SBA Releases Important New Rules Regarding PPP Loan Forgiveness

6.24.2020

The Small Business Administration (SBA) just released important new rules regarding forgiveness of Paycheck Protection Program (PPP) loans. The June 22 Revisions to Loan Forgiveness Interim Final Rule and SBA Loan Review Procedures Interim Final Rule offer additional clarification on the rules governing forgiveness of PPP loans, while providing borrowers with additional flexibility. What do employers need to know about these developments?

If we have used all the PPP loan proceeds before the end of the Covered Period, can we apply for forgiveness prior to the end of the covered period?

Yes. The new rules clarify that a borrower may submit a loan forgiveness application before the end of the Covered Period if the borrower has used all the loan proceeds for which the borrower is requesting forgiveness.

Many borrowers who were nearing the end of their eight-week covered period when the PPP Flexibility Act was passed had not expended all their PPP funds, but also did not have sufficient funds remaining to cover payroll costs for the expanded 24-week period. This left many borrowers questioning whether to stay with the eight-week period and return unused funds, or use the new 24-week covered period and potentially have numerous weeks not covered by PPP loan funds.

The new rules allow borrowers to elect the 24-week Covered Period without forcing the borrower to wait until the end of the 24-week Covered Period to apply for loan forgiveness. As a result, employers have more flexibility with their staffing needs. They can elect to use the 24-week covered period without the need to consider how head count reductions occurring after PPP funds were exhausted would impact forgiveness - provided, of course, that they submit their forgiveness application immediately upon exhausting PPP loan funds.

Borrowers should note that the rules specify that if the borrower applies for forgiveness before the end of the covered period and "has reduced any employee's salaries or wages in excess of 25%, the borrower must account for the excess salary reduction for the full eight-week or 24-week covered period." However, if the borrower has restored salaries and wages at the time that it submits the forgiveness application, the borrower does not need to account for the salary/wage reduction.

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