23 June 2020

Small Business Administration (SBA) and Treasury Department Release Updated Paycheck Protection Program (PPP) Loan Forgiveness Guidance

Late on June 22, 2020, the U.S. Small Business Administration (SBA) and Treasury Department (Treasury) published updated rulemaking regarding loan forgiveness under the Paycheck Protection Program (PPP).  The latest rulemaking amends previous interim final rules (IFRs) published by SBA and Treasury in May.  As with the updated PPP loan forgiveness applications made available last week, SBA’s latest IFR largely conforms prior rulemaking to implement amendments to the PPP pursuant to the Paycheck Protection Program Flexibility Act signed into law on June 5, 2020.

As Miller Johnson’s cross-functional PPP team continues to review this latest forgiveness IFR and its implications for PPP borrowers, several key items stand out as particularly noteworthy:

  • Borrowers do not need to wait to file their loan forgiveness application until the expiration of their “covered period” if they have already utilized all of their PPP loan proceeds.
  • However, if a borrower applies for forgiveness before the end of its covered period and has reduced any employee’s salary or wages by more than 25%, then the borrower must account for this excess salary reduction for the full 8-week or 24-week covered period (i.e., as if the salary reduction continued and remained in effect throughout the full 8-week or 24-week covered period) when calculating its overall loan forgiveness amount.
  • Consistent with the PPP Flexibility Act, borrowers are generally exempted from PPP loan forgiveness reductions arising from a decrease in the number of FTE employees during their covered period if the borrower is able to document an inability to return to the same level of business activity as the borrower was operating at before February 15, 2020, due to compliance with requirements established or guidance issued between March 1, 2020 and December 31, 2020 by the Secretary of Health and Human Services (HHS), the Director of the Centers for Disease Control and Prevention (CDC) or the Occupational Safety and Health Administration (OSHA) related to the maintenance of standards for sanitation, social distancing or any other worker or customer safety requirement related to COVID-19 (COVID Requirements or Guidance). The latest IFR suggests that SBA is interpreting and implementing this exemption broadly:
  • First, SBA is interpreting the exemption to include both direct and indirect compliance with COVID Requirements or Guidance, since a significant amount of the reduction in business activity stemming from COVID Requirements or Guidance is the result of state and local government shutdown orders that are based in part on guidance from HHS, CDC and/or OSHA.
  • Second, an example scenario on 23-24 of the latest IFR, applying this exemption, appears to provide significant relief for businesses that were required to close or significantly reduce their operations for a period of time due to state or local orders that are/were based in part on COVID Requirements or Guidance. SBA’s example concludes by stating that, “Because the borrower’s business activity during the covered period was reduced compared to its activity before February 15, 2020 due to compliance with COVID Requirements or Guidance, the borrower satisfies the Flexibility Act’s exemption and will not have its forgiveness amount reduced because of a reduction in FTEs during the covered period” as long as the borrower retains good faith records of the applicable government shutdown order (including its basis in any COVID Requirements or Guidance) and the resulting reduction in business activity.
  • SBA has provided somewhat clearer guidance regarding the calculation of forgivable “owner compensation” for various types of individuals: C-corporation owner-employees, S-corporation owner-employees, Schedule C or F filers, general partners, etc., on 13-15 of the latest IFR. This guidance should help clear up some of the confusion created by earlier SBA rulemaking and the PPP loan forgiveness applications/instructions.
  • Borrowers may submit their PPP loan forgiveness application at any time before the loan’s maturity date. However, consistent with the PPP Flexibility Act, borrowers who delay submission of their loan forgiveness application for more than ten months after the end of their covered period will be required to start making payments on their loan (i.e., the loan deferment period will end) at that time.

The Miller Johnson cross-functional PPP team continues to review SBA’s latest forgiveness IFR in detail in order to work with clients and their other professional advisors to navigate the PPP loan forgiveness process.  As we continue this review, Miller Johnson will be hosting a short webinar on Wednesday, June 24, at 8:00am to review the most critical takeaways from the updated PPP loan forgiveness guidance.  To attend the webinar, please register here:

Finally, as the PPP and related compliance challenges continue to evolve, we encourage PPP borrowers to reach out to their Miller Johnson contacts to learn more about our flat-fee PPP Audit and Compliance Preparedness Program.  This program offers clients a strategic solution to identify, gather and organize relevant documents and performance data to ensure their business is best positioned to comply with the ever-changing forms and rules governing the PPP.  The program will also involve identifying key legal arguments so that clients are prepared for any potential enforcement action or inquiry.  Additional details regarding this program are available here.