SBA Paycheck Protection Program FAQs

What Documents Do I Need In Order To
Apply For PPP Forgiveness?

 

Double Check Your Application:

  • 60% of payroll costs must be notated on Line 7 or Line 10 on page one of the application
  • Legal name on the application matches the SBA Loan Authorization
  • Borrower EIN or SSN is included
  • SBA Loan Number on your application matches the SBA Loan Authorization/SBA Approval number
  • Loan Amount and Disbursement date match (the day the money was deposited or check cut to borrower)
  • Covered Period is noted - either 24-Week Period OR 8-Week Period (if loan was before June 5th)
  • Forgiveness calculation is completed (lower portion of page one on either form)
  • Initial certification, name is printed with title, and application is dated
  • If borrower received an EIDL Advance/Loan, the loan amount and loan app number have been entered
  • Schedule A (only if using Form 3508) attached and completed. Page 6, Line 13 cannot be blank
  • Worksheet is completed and attached: borrower can use either the Blackhawk Bank worksheet, SBA worksheet, or a third party worksheet (note: this is not required for independent contractors).
  • Documented payroll hours and expenses at the per-employee level (not required for independent contractors)
    • For the actual 8 week or 24 week Covered Period beginning on the date your loan was funded
    • Payroll hours for the period of 2/15/2019 thru 6/30/2019
    • Payroll hours for the period of 1/1/2020 thru 2/29/2020
    • Average payroll at the employee level from 1/1/2020 thru 3/31/2020
    • FTEE of the date of your submission of Forgiveness Application or 12/31/2020, whichever is sooner 
    • Complete 941 Form Federal & State Payroll Tax Filings reported or that will be reported to the IRS, and Quarterly State Business and Individual Employee Wage Reporting, and Unemployment Insurance Tax Filings reported or that will be reported to the relevant state that completely covers the Covered Period (not required for independent contractors)
    • Proof of payment of all other benefits - ex: retirement, health care, insurance, copies of invoices, etc. (not required for independent contractors)
  • Copies of all lease agreements and proof of payment during your Covered Period
  • Copies of all utility invoices and proof of payments during your Covered Period
  • Copies of all business mortgage and other loan Notes and proof of payments during the Covered Period (non-Blackhawk Bank)
  • For Self-Employed / Independent Contractors, we will need a copy of your 2019 IRS Form 1040, Schedule C, from the tax return
  • Additionally, if any lease, utility, or other debt is applicable, copies will also be required - ex: executed and dated lease agreement, borrower/tenant name is on lease, cancelled checks, receipts, or online payments verifying eligible payments


Application Questions

THERE ARE TWO FORGIVENESS APPLICATIONS; WHAT IS THE DIFFERENCE BETWEEN THE FORMS?
DO I HAVE TO ANSWER YES TO ALL THREE ?S FOR THE EZ FORM?
SHOULD I WAIT OR APPLY FOR FORGIVENESS NOW?
DOES A BORROWER HAVE TO MAKE PAYMENTS PRIOR TO SBA REMITTING THE FUNDS? 

Payroll Questions

FOR CASH COMPENSATION, SHOULD I USE GROSS OR NET AMOUNT?
WHAT EXPENSES FOR GROUP HEALTH CARE BENEFITS WILL BE CONSIDERED PAYROLL COSTS?
FOR CALCULATING THE FORGIVENESS REDUCTION OF SALARY/HOURLY WAGES IN EXCESS OF 25%, WHAT FORMS OF COMPENSATION ARE INCLUDED?
ARE EMPLOYER TAXES ELIGIBLE?
AS AN INDEPENDENT CONTRACTOR, WE DON'T HAVE PAYROLL OR RENT. CAN WE USE THE PPP FUNDS TO PAY OUR PERSONAL EXPENSES (LIKE PROPERTY TAXES)?
WHAT'S AN EXAMPLE OF 60% ELIGIBLE EXPENSES?
WHAT IS INCLUDED IN ELIGIBLE PAYROLL EXPENSES? 
HOW IS FORGIVENESS CALCULATED FOR SELF EMPLOYED WHAT ABOUT 1099s?
WHAT IF WE WERE REQUIRED TO CLOSE OUR BUSINESS? 
WHAT IF MY EMPLOYEE VOLUNTARILY REDUCED THEIR HOURS?

Mortgage, Rent, or Other Interest & Lease Questions

ARE RENT PAYMENTS TO A RELATED PARTY ELIGIBLE FOR LOAN FORGIVENESS?
CAN I PREPAY MY RENT AND INCLUDE IT?
WHAT IF THERE IS NO LEASE AGREEMENT?
DO AGREEMENTS FOR DEED QUALIFY?
HOW ABOUT INTEREST FROM A LINE OF CREDIT?
IS THE INTEREST ON UNSECURED CREDIT ELIGIBLE FOR LOAN FORGIVENESS?
ARE PAYMENTS MADE ON RECENTLY RENEWED LEASES, OR INTEREST PAYMENTS ON REFINANCED MORTGAGE LOANS ELIGIBLE FOR FORGIVENESS IF THE ORIGINAL LEASE OR MORTGAGE WAS BEFORE FEBRUARY 15TH?

Utilities Questions

 

General Questions

Application Questions

THERE ARE TWO NEW FORGIVENESS APPLICATIONS AVAILABLE. WHAT IS THE DIFFERENCE?

On Wednesday, June 17th, SBA released two Forgiveness Applications. Form 3508 is the full Forgiveness Application and was re-released to simply update dates and language to accommodate the changes made as a result of the Paycheck Protection Program Flexibility Act of 2020 (PPPFA).

A new Form 3508EZ was released for the first time that day and is intended to simplify the Forgiveness process for borrowers that:

  • Is a self-employed individual, independent contractor, or sole proprietor who had no employees at the time of loan application and did not include any employee salaries as part of the loan request; OR
  • Have not reduced the salary or hourly wages of employees by more than 25% during the covered period as compared to the reference period, AND did not reduce the number of employees or the average paid hours of employees between January 1, 2020 and the end of their covered period; OR
  • Have not reduced the salary or hourly wages of employees by more than 25% during the covered period as compared to the reference period, AND was unable to operate during the covered period at the same level as before February 15, 2020 due to compliance with established guidance by certain health care agencies

Should any of these 3 situations apply to your business, the simplified Form 3905EZ may be used

If none of these situations apply to your business then you must use the longer form 3508 that will require the submission of a more complex document.

In either case, you will need to retain the necessary documentation to support everything you are attesting and certifying for 6 years after the date on which your loan has been completely paid in full. The SBA reserves the right to audit your records for this period of time and these supporting documents will need to be readily available. 

THE EZ APPLICATION INDICATES YOU ONLY HAVE TO ANSWER 'YES' TO ONE OF THE QUESTIONS, NOT ALL THREE?

Correct, if any of the three questions can be answered affirmatively, you may use the EZ Form.

SHOULD MY BUSINESS APPLY NOW OR WAIT FOR THE 24-WEEK COVERED PERIOD TO ELAPSE? CAN WE CHOOSE A 16 WEEK PERIOD, OR DOES IT HAVE TO BE 8 OR 24?  

A great question many clients have asked. I would suggest that if, during the initial 8-week covered period, you are able to achieve 100% loan forgiveness based upon the updated guidance, including the 60/40 payroll/non-payroll expense structure, there would really be no reason to wait. In fact, I would think that you would not want to risk the program changing that may somehow impact your forgiveness.

Most self-employed persons, independent contractors, or sole proprietors having qualified for the loan by submitting their Schedule C of the 2019 IRS 1040 would fall into this category of full loan forgiveness over the original 8-week covered period

However, if you have not yet achieved full loan forgiveness and believe you will, you may wish to wait for the additional allowed time the extension of the covered period allows (select a period before the end of 24 weeks). In most cases, extending this covered period will help businesses qualify a larger portion of their loan for forgiveness. As with any chosen delay, understand that changes to the program may not work in your favor and changes to the operation of your business may impact the amount of forgiveness in the future. 

IF A BORROWER SUBMITS A TIMELY LOAN FORGIVENESS APPLICATION, DOES THE BORROWER HAVE TO MAKE ANY PAYMENTS ON ITS LOAN PRIOR TO SBA REMITTING THE FORGIVENESS AMOUNT, IF ANY?

As long as a borrower submits its loan forgiveness application within ten months of the completion of the Covered Period (as defined below), the borrower is not required to make any payments until the forgiveness amount is remitted to the lender by SBA. If the loan is fully forgiven, the borrower is not responsible for any payments. If only a portion of the loan is forgiven, or if the forgiveness application is denied, any remaining balance due on the loan must be repaid by the borrower on or before the maturity date of the loan. Interest accrues during the time between the disbursement of the loan and SBA remittance of the forgiveness amount. The borrower is responsible for paying the accrued interest on any amount of the loan that is not forgiven. The lender is responsible for notifying the borrower of remittance by SBA of the loan forgiveness amount (or that SBA determined that no amount of the loan is eligible for forgiveness) and the date on which the borrower’s first payment is due, if applicable.

ARE ANY INDIVIDUALS WITH AN OWNERSHIP STAKE EXEMPT FROM APPLICATION OF THE PPP OWNER-EMPLOYEE COMPENSATION RULE WHEN DETERMINING THE AMOUNT OF THEIR COMPENSATION THAT IS ELIGIBLE FOR LOAN FORGIVENESS?

Yes, owner-employees with less than a 5 percent ownership stake in a C- or S-Corporation are not subject to the owner-employee compensation rule. The First Loan Forgiveness Rule, as revised by the Revisions to Loan Forgiveness and Loan Review Procedures Interim Final Rules, 85 FR 38304, 38307 (June 26, 2020), caps the amount of loan forgiveness for payroll compensation attributable to an owner-employee. There is no exception in the rule based on the owner-employee’s percentage of ownership. The Administrator, in consultation with the Secretary, has now determined that an owner-employee in a C- or S-Corporation who has less than a 5 percent ownership stake will not be subject to the owner-employee compensation rule. This exemption is intended to cover owner-employees who have no meaningful ability to influence decisions over how loan proceeds are allocated.

 

Payroll Questions

FOR CALCULATING CASH COMPENSATION, SHOULD BORROWERS USE THE GROSS AMOUNT BEFORE DEDUCTIONS FOR TAXES, EMPLOYEE BENEFITS PAYMENTS, AND SIMILAR PAYMENTS, OR THE NET AMOUNT PAID TO EMPLOYEES?

The gross amount should be used when calculating cash compensation.

WHAT GROUP HEALTH CARE BENEFITS WILL BE CONSIDERED PAYROLL COSTS THAT ARE ELIGIBLE FOR LOAN FORGIVENESS?

Employer expenses for employee group health care benefits that are paid or incurred by the borrower during the Covered Period or the Alternative Payroll Covered Period are payroll costs eligible for loan forgiveness. However, payroll costs do not include expenses for group health care benefits paid by employees (or beneficiaries of the plan) either pre-tax or after tax, such as the employee share of their health care premium.

FOR PURPOSES OF CALCULATING THE LOAN FORGIVENESS REDUCTION REQUIRED FOR SALARY/HOURLY WAGE REDUCTIONS IN EXCESS OF 25% FOR CERTAIN EMPLOYEES, ARE ALL FORMS OF COMPENSATION INCLUDED OR ONLY SALARIES AND WAGES?

For purposes of calculating reductions in the loan forgiveness amount, the borrower should only take into account decreases in salaries or wages.

CAN I INCLUDE THE EMPLOYER PORTION OF FEDERAL EMPLOYMENT TAXES IN MY FORGIVENESS AMOUNT?

No, Federal taxes paid by the employer are not eligible for Forgiveness under the PPP loan. Gross employee wages are allowed and state or local employer taxes on payroll are allowed, but not employer paid Federal taxes. 

AS AN INDEPENDENT CONTRACTOR, WE DON'T HAVE PAYROLL OR RENT EXPENSES. CAN WE USE THE PPP FUNDS TO PAY OUR PERSONAL EXPENSES (LIKE PROPERTY TAXES)?

As an independent contractor, filing a Schedule C, the funds received from your PPP loan are essentially income replacement for you. There is the presumption that 2019 Schedule C is a "normalized" level of income and, therefore, proceeds of the PPP are not restricted to "allowable uses" as they are for other business entities under this program. You may use the proceeds as you would with any net income from your self-employed earnings.  

WHAT DO YOU MEAN WHEN YOU SAY 60% OF THE POTENTIALLY ELIGIBLE FORGIVENESS AMOUNT MUST BE FOR PAYROLL?

A quick example - let's say that your company's eligible payroll expenses for the 8 or 24-week covered period is $10,000 and when the potentially eligible non-payroll expenses, like interest, utilities and rent, add up they total $7,000. In this example, a company would not potentially be eligible for the full $17,000 in Forgiveness because the $7,000 is more than 40% of the $17,000. A company would be limited in that example to $16,666. And, therefore, only $6,666 of the $7,000 in other expenses could be forgiven. A minimum of 60% of the potential Forgiveness amount must be used for payroll related expenditures with the maximum limited to the entire loan balance, plus interest.  

WHEN CALCULATING WHAT PAYROLL COSTS CAN BE POTENTIALLY ELIGIBLE FOR FORGIVENESS, CAN I INCLUDE PREMIUM PAY (ex- hazard pay) OR BONUSES PAID IN THE COVERED PERIOD? 

There is nothing in the current guidance that would indicate a temporary increase in hourly or salary would be excluded as long as it would meet the definition of "incurred and paid". However, potentially forgivable expenses will be limited to the annualized upper end of $100,000 as prorated over the covered period. Additional restriction also applies to owners.  

WHAT ABOUT OVERTIME? WHAT IF I REDUCED OVERTIME PAY?

The current guidance indicates that overtime pay is included in payroll. If you dropped the overtime hours below 40 per week, then no. Anyone working 40+ hours per week is counted as 1 FTEE, regardless of OT hours.  

WHAT IF AN EMPLOYEES PASSED AWAY DURING THE COVERED PERIOD?

Employees that have passed away would not impact your FTEE count.  

DO DEFINED BENEFIT PLAN PAYMENTS QUALIFY?

Yes, payments made for retirement benefits are eligible for potential Forgiveness for most employees. However, the "incurred and paid" issue will still apply. Self employed persons and general partners are not able to use retirement expenses as a forgivable expense.  

WILL THE FORGIVENESS AMOUNT BE REDUCED IF WE LAID OFF EMPLOYEES, OFFERED TO REHIRE THE SAME EMPLOYEES, BUT THE EMPLOYEES DECLINED THE OFFER? OR EMPLOYEES VOLUNTARILY REDUCED THEIR HOURS BECAUSE THEY FELL UNDER THE EPSL (emergency paid sick leave) or EFLMA (emergency family medical leave act) programs? 

No. As an exercise of the Administrator’s and the Secretary’s authority under Section 1106(d)(6) of the CARES Act to prescribe regulations granting de minimis exemptions from the Act’s limits on loan forgiveness, SBA and Treasury intend to issue an interim final rule excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and same number of hours) from the CARES Act’s loan forgiveness reduction calculation.

The interim final rule will specify that, to qualify for this exception, the borrower must have made a good faith, written offer of rehire, and the employee’s rejection of that offer must be documented by the borrower.

Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation. If you did not pay employees during this period due to voluntary reduced hours, you would not have their wages to add to the potential forgiveness amount but voluntary reduction in work will not impact you from an FTEE reducer standpoint. You will simply need to explain this when submitting your forgiveness application.  

I AM A SELF-EMPLOYED INDIVIDUAL WITH NO EMPLOYEES OR OTHER ELIGIBLE EXPENSES. HOW WILL YOU CALCULATE MY FORGIVENESS?

Self-employed individuals with no employees or other eligible expenses such as deductible interest, utilities, or rent will calculate forgiveness by simply determining the 2019 net income as noted on your 2019 IRS Form 1040 Schedule C, line 31. Divide this amount (capped at $100,000) by 52 weeks and then multiple that number by 8 weeks of the covered period ($15,385 cap). If the 24 week period is chosen, then the forgiveness amount will be calculated by using 2.5x the monthly average of 2019 net income as noted on your 2019 IRS Form 1040 Schedule C, line 31. 

HOW SHOULD I TREAT PEOPLE WORKING FOR MY COMPANY THAT ARE INDEPENDENT CONTRACTORS AND WHOSE PAY IS DOCUMENTED VIA A 1099, RATHER THAN A W-2?

Independent contractors are not eligible to be counted on payroll for your company and would also not be considered in the Forgiveness calculations. Independent contractors were eligible to apply for PPP loans on their own, but not on your application.  

WE HAVE LAID PEOPLE OFF BECAUSE WE WERE REQUIRED TO CLOSE OUR BUSINESS. WOULD A SHUTDOWN FROM A STATE GOVERNOR EXECUTIVE ORDER QUALIFY? WILL THAT IMPACT HOW MUCH OF THIS LOAN CAN BE FORGIVEN?

New guidance suggests the answer here is, “It depends”.

If you were unable to operate between February 15, 2020, and the end of the Covered Period at the same level of business activity as 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, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to the maintenance of standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19, then you would have been considered achieving a safe harbor. We believe this also applies to Executive Orders which follow the above guidelines. 

If the reasons for laying off people are not tied specifically to the above, (ex- suppliers shut down) then yes, you may be subject to reduction of forgiveness. 

WHAT HAPPENS IF MY ENTIRE LOAN AMOUNT CANNOT BE FORGIVEN AT THE END OF THIS "COVERED PERIOD"? WHAT HAPPENS TO THE REMAINDER OF THIS LOAN?

If the total amount of your initial loan cannot be forgiven based on the guidance and rules of the Forgiveness calculation, the remainder of your loan will need to be repaid. Those remaining amounts will have the period until forgiveness is determined by the SBA deferred (retroactive to date of initial funding) and then there would be repayment of the remaining balance over a term mutually agreed to by both the bank and the client, not to exceed 5 years from the original date of funding. The interest rate is 1% and will accrue during the entire term of the loan. 

Mortgage, Rent, or Other Interest & Lease Questions

ARE RENT PAYMENTS TO A RELATED PARTY ELIGIBLE FOR LOAN FORGIVENESS?

Yes, as long as (1) the amount of loan forgiveness requested for rent or lease payments to a related party is no more than the amount of mortgage interest owed on the property during the Covered Period that is attributable to the space being rented by the business, and (2) the lease and the mortgage were entered into prior to February 15, 2020. 1 Any ownership in common between the business and the property owner is a related party for these purposes. The borrower must provide its lender with mortgage interest documentation to substantiate these payments. While rent or lease payments to a related party may be eligible for forgiveness, mortgage interest payments to a related party are not eligible for forgiveness. PPP loans are intended to help businesses cover certain nonpayroll obligations that are owed to third parties, not payments to a business’s owner that occur because of how the business is structured. This will maintain equitable treatment between a business owner that holds property in a separate entity and one that holds the property in the same entity as its business operations.

CAN I PREPAY MY RENT DURING THIS 8-WEEK PERIOD TO INCLUDE IT IN THE FORGIVENESS CALCULATION?

We believe the "incurred and paid" element would impact this. While the specific definition still needs to be provided, it would appear that the intent of this program would not allow you to "prepay" any expenses and have those expenses qualify for Forgiveness.  

WHAT IF THERE IS NO LEASE AGREEMENT (EX- A STYLIST PAYING RENT TO A SALON OWNER)?

We suggest a signed acknowledgement from both parties stating that no written agreement is in place but that the verbal agreement has been in place prior to 2/15/20. 

I RENT ROOMS AT TWO SALONS AND WRITE CHECKS TO THE OWNERS NAMED IN EACH LEASE AGREEMENT. DOES FORGIVENESS APPLY TO BOTH LOCATIONS?

Yes, this is no different that any other business with more than one location.  

WHAT ABOUT RENT PAID TO A RELATED PARTY COMPANY? CAN IT BE INCLUDED IN FORGIVENESS?

There is no prohibition on rent paid to a related entity. Proof of payment and lease agreements would need to be provided as with any lease expense seeking forgiveness consideration.

WHEN LOOKING AT MORTGAGE INTEREST, DO AGREEMENT OR CONTRACT FOR DEED TRANSACTIONS QUALIFY?

There would be nothing specific about an agreement or contract for deed situation that would exclude it from being acceptable. In these situations, the "lender" is simply the seller rather than a traditional bank. All of the same documentation requirements would still be present, however. The contract would have to be dated prior to 2/15/2020, it would include just the interest paid, not principal, and proof of payment would still be required for the "covered period".  

WOULD THE INTEREST I PAID ON MY LINE OF CREDIT QUALIFY?

Yes, recent guidance suggests interest paid by the business on real or personal property debt would be a forgivable expense. Together with other non-payroll expenses are limited to 40% of the total potential forgiveness amount. 

IS INTEREST ON UNSECURED CREDIT ELIGIBLE FOR FORGIVENESS?

Yes, recent guidance suggests interest paid by the business on real or personal property debt would be a forgivable expense. Together with other non-payroll expenses are limited to 40% of the total potential forgiveness amount.

ARE PAYMENTS MADE ON RECENTLY RENEWED LEASES, OR INTEREST PAYMENTS ON REFINANCED MORTGAGE LOANS ELIGIBLE FOR LOAN FORGIVENESS IF THE ORIGINAL LEASE OR MORTGAGE EXISTED PRIOR TO FEBRUARY 15, 2020?

Yes. If a lease that existed prior to February 15, 2020 expires on or after February 15, 2020 and is renewed, the lease payments made pursuant to the renewed lease during the Covered Period are eligible for loan forgiveness. Similarly, if a mortgage loan on real or personal property that existed prior to February 15, 2020 is refinanced on or after February 15, 2020, the interest payments on the refinanced mortgage loan during the Covered Period are eligible for loan forgiveness.

 
Utilities Questions

WHAT UTILITIES WILL BE CONSIDERED AS A QUALIFIED EXPENSE UNDER THIS PROGRAM?

There has been no specific guidance on what may qualify. Most that will likely qualify are very logical, such as gas, electric, water, telephone, garbage, and internet. However, there may be other expenses that will qualify as well. Please be sure to track and document all that you believe may qualify so that you are prepared either way. However, in extending the covered period to 24 weeks, questionable eligibility will be far less of an issue. 

WOULD TRANSPORTATION COSTS THAT ARE INCLUDED IN UTILITY PAYMENTS INCLUDE: TOLLS, GASOLINE, MILEAGE REIMBURSEMENTS TO EMPLOYEES, AUTO INSURANCE PREMIUMS?

As there has been very little guidance on transportation expenses, it would be our recommendation to avoid using these if at all possible.

ARE ELECTRICITY SUPPLY CHARGES ELIGIBLE FOR LOAN FORGIVENESS IF THEY ARE CHARGED SEPARATELY FROM ELECTRICITY DISTRIBUTION CHARGES?

Yes, the entire electricity bill payment is eligible for loan forgiveness (even if charges are invoiced separately), including supply charges, distribution charges, and other charges such as gross receipts taxes.


General Questions

WHAT IS THE MATURITY DATE OF A PPP LOAN? 

If a PPP loan received an SBA loan number on or after June 5, 2020, the loan has a five-year maturity. If a PPP loan received an SBA loan number before June 5, 2020, the loan has a two-year maturity, unless the borrower and lender mutually agree to extend the term of the loan to five years. The promissory note for the PPP loan will state the term of the loan. 

WHAT DOES THE TERM "INCURRED AND PAID" ACTUALLY MEAN? WE PAY CERTAIN PAYROLL EXPENSES AT THE END OF THE MONTH. WHAT IF WE PAY WOULD NORMALLY MAKE THE NEXT PAYMENT AFTER THE COVERED PERIOD?

Eligible expenses paid during the covered period are allowed. Further, expenses that were incurred during the covered period and paid at the next due date, even if outside the covered period, would also qualify. If you paid the expense during the covered period OR incurred the expense and then paid the expense at the next regular due date, it is an allowable expense (with some extreme limitations).  

WILL PROOF OF PAYMENT BE ON A CASH OR ACCRUAL BASIS? WHAT IS CONSIDERED THE 'PAID' DATE? 

While this topic has not specifically been addressed, all indications are that you will need to show proof that the expense has been paid during the covered period or at the next due date following the covered period and not simply accrued for. Any paid items would require proof the check cleared your account, not the date you wrote the check. 

I HAVE HEARD THAT THE FORGIVABLE PORTION OF THIS LOAN WILL NOT BE TAXABLE LIKE OTHER LOAN FORGIVENESS. IS THAT TRUE?

While the program has made clear that loan Forgiveness under this program will not be subject to typical loan Forgiveness tax treatment, there are other questions that have not yet been made clear by the individual states or by the Internal Revenue Service. It would be our recommendation that you consult with a tax professional when preparing for 2020 tax planning or preparation.  

I RECEIVED AN EIDL LOAN (ECONOMIC INJURY DISASTER LOAN) PAYMENT AFTER RECEIVING MY PPP LOAN. DO I HAVE TO REPAY THAT OR NET IT OUT OF MY FORGIVENESS CALCULATIONS?

The SBA will verify the status of your EDIL Loan during their review of your PPP Forgiveness application and one of the following scenarios will apply:

  • An EIDL Loan May Not Be Refinanced with a PPP Loan When:
  • The PPP Borrower received the EIDL loan before January 31, 2020 or after April 3, 2020.

An EIDL Loan is Not Required to Be Refinanced with a PPP Loan When:

  • The PPP Borrower received funds from an EIDL loan from January 31, 2020 through April 3, 2020 and the PPP Borrower used the EIDL loan for purposes other than payroll costs.

A PPP Loan Must Be Used to Refinance the Full Amount of the EIDL Loan When:

  • The PPP Borrower received funds from the EIDL loan from January 31, 2020 through April 3, 2020; and The PPP Borrower used the EIDL loan funds to pay payroll costs. 

HOW WILL THE SBA REVIEW BORROWERS' GOOD-FAITH CERTIFICATION CONCERNING THE NECESSITY OF THEIR REQUEST?

When submitting a PPP application, all borrowers were required to certify in good faith that "[c]urrent economic uncertainty makes this loan necessary to support the ongoing operations of the Applicant." The agency, in consultation with the Department of Treasury, has determined that the following safe harbor will apply to SBA's review of PPP loans with respect to this issue:

Any borrower that, together with its affiliates, received PPP loans with an original principal
amount of less than $2 million will be deemed to have made the required certification
concerning the necessity of the loan request in good faith. 

Rationale: SBA has determined that this safe harbor is appropriate because borrowers with loans below this threshold are generally less likely to have had access to adequate sources of liquidity in the current economic environment than borrowers that obtained larger loans.