Latest Update: New PPP Interim Final Rule

The Small Business Administration (SBA) on June 10 published a new Interim Final Rule (IFR) incorporating provisions of the Paycheck Protection Program (PPP) Flexibility Act.  The Flexibility Act amended the CARES Act provisions related to loan terms and forgiveness. The new IFR addresses: PPP loan forgiveness covered period revisions, time period on payment of principal and interest on PPP loan, and maturity date for PPP loans. One of the most important topics covered is about forgiveness of the PPP loan in whole or in part. Here is information about this subject.

Can my PPP loan be forgiven in whole or in part?

Yes.  The amount of loan forgiveness can be up to the full principal amount of the loan and any accrued interest. An eligible borrower will not be responsible for any loan payment if the borrower uses all of the loan proceeds for forgivable purposes as described below and employee and compensation levels are maintained or, if not, an applicable safe harbor applies. The actual amount of loan forgiveness will depend, in part, on the total amount of payroll costs, payments of interest on mortgage obligations incurred before February 15, 2020, rent payments on leases dated before February 15, 2020, and utility payments for service that began before February 15, 2020, over the loan forgiveness covered period. However, to receive full loan forgiveness, a borrower must use at least 60% of the PPP loan for payroll costs, and not more than 40% of the loan forgiveness amount may be attributable to nonpayroll costs.

Example of the 60% Rule

If a borrower uses 59% of its PPP loan for payroll costs, it will not receive the full amount of loan forgiveness it might otherwise be eligible to receive. Instead, the borrower will receive partial loan forgiveness, based on the requirement that 60 percent of the forgiveness amount must be attributable to payroll costs. For example, if a borrower receives a $100,000 PPP loan, and during the covered period the borrower spends $54,000 (or 54%) of its loan on payroll costs, then because the borrower used less than 60% of its loan on payroll costs the maximum amount of loan forgiveness the borrower may receive is $90,000 (with $54,000 in payroll costs constituting 60% of the forgiveness amount and $36,000 in nonpayroll costs constituting 40% of the forgiveness amount).

$54,000 (payroll costs spent & eligible for loan forgiveness) divided by 60% = $90,000

$90,000 x 40% = $36,000 qualified non-payroll costs (mortgage, interest, rents and utilities)

Still Time to Apply: Funds Available                                                                                                                                                                  
As of last week, about $130 billion remains from the second round of $320 billion that Congress approved for PPP. The initial round of $349 billion was tapped in just 13 days.

Click here for the full text of the June 10, 2020 Interim Final Rule.

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