KCoe Offers More Info on Forgiveness on PPP

The Small Business Administration has released more information about loan forgiveness through the Payroll Protection Program. Advisors from KCoe offer these takeaways from the Interim Final Rule (IFR) issued in late May.

  • Economic Injury Disaster Loans (EIDL) grants will reduce loan forgiveness.
  • Qualified payroll costs now include:
    • Wages paid to furloughed employees
    • Bonus and hazard pay
    • Owner-employees’ retirement and health contribution costs
  • Self-employed individuals and general partners’ forgivable “compensation equivalent” is limited to $15,385 in total, across all businesses. Health insurance and retirement contributions are not eligible.
  • Utility costs can be prorated over the borrower’s eight-week covered period. For example, if a borrower’s covered period ends June 26, and its June electric bill covers service from June 1 to June 30, and it is paid on its regular due date, the portion of the bill that covers service through June 26 is eligible.
  • Salary reduction and reduced hours: If a salary reduction is attributable to a reduction in hours, the reduction affects the borrower’s FTE (full-time equivalent) count and does not cause a wage reduction (preventing a double penalty for a single event).
  • In some cases, a change in FTEs does not reduce the forgivable amount of the loan, including:
    • If an employee was laid off or furloughed and declines a written offer to be restored to their position with full pay;
    • An employee is fired for cause;
    • An employee voluntarily resigns;
    • An employee requests a reduction in hours.
  • Salary and wage reductions are calculated on a per-employee basis. The first 25 percent of salary reduction is excluded from the forgiveness reduction calculation. For example, if a borrower reduces a full-time employee’s weekly salary from $1,000 per week during the reference period to $700 per week during the covered period. In this case, the first $250 (25 percent of $1,000) is exempted from the reduction. The borrower’s forgiveness application will list $400 as the salary/hourly wage reduction for that employee ($50/week multiplied by eight weeks).

The SBA may review any PPP loan for eligibility, accuracy of the loan amount, the borrower’s use of funds, and accuracy of the forgiveness calculation.

The audit process may be conducted using lenders as an intermediary, or the SBA may request additional information directly from the borrower.

Failing to respond to an inquiry from SBA may result in a determination that the borrower was ineligible for the loan, received an incorrect loan amount, or received an incorrect forgiveness amount. If the SBA determines the borrower was not eligible for the loan, it may pursue action against the owner to recover the funds.