Author: Dave Coggins Date: 06/19/2020

Paycheck Protection Program Flexibility Act (PPPFA)

Debt Forgiveness Application Process Update Version 2.0

Recently we provided an extensive update on the debt forgiveness phase of the Paycheck Protection Program (PPP) based primarily on changes brought about by the Paycheck Protection Program Flexibility Act (PPPFA) signed into law on June 5. The changes resulting from this law were significant and helpful to most borrowers in terms of increasing the likelihood they can get all of their PPP loan forgiven.

On June 17, after our last update was written, SBA released its new 3508 EZ debt forgiveness application along with further clarification of some of the details of the forgiveness process. Here is a summary of the changes announced with this update.

New 3508 EZ Application Streamlines Process

This new short form forgiveness application streamlines the forgiveness process for many borrowers who qualify to use it. Applicants must meet any one of the following criteria to qualify for using the PPP Loan Forgiveness Application Form 3508EZ.

  • Applied for the PPP loan as self-employed, an independent contractor or a sole proprietor with no employees.
  • Did not reduce salary or hourly wages for any employee by more than 25% during the Covered Period or Alternative Covered Payroll Period, and did not reduce the number or average paid hours of their employees (ignoring reductions that arose from laid-off employees who refused an offer to return or reductions from an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020).
  • Did not reduce salary or hourly wages for any employee by more than 25% during the Covered Period or Alternative Covered Payroll Period and experienced reductions in business activity during the Covered Period as a result of health directives related to COVID-19

Other Clarifications and Updates

  • It is now clear that if a borrower uses the 24-week covered period they can pay an individual employee up to $46,154 in salary wages and tips (24 weeks of annualized salary of $100,000) as well as covered benefits.
  • Owner compensation replacement calculated based on 2019 net profit can be up to $15,385 for the eight-week covered period or $20,833 for the 24-week covered period.
  • The standard Loan Forgiveness Application (SBA Form 3508) has been updated to coincide with the rules as revised by the PPPFA.

ICB Application Portal Coming Soon

  • We are committed to launching an online platform to allow all customers to digitally submit their application for forgiveness including uploading required documentation. This platform is being updated to accommodate the rules changes brought about by this June 17 announcement of the 3508EZ application. We expect to launch this online portal in the next several days.
  • We want to remind you it is in your best interest to wait to file your application for forgiveness until after July 1 to make sure you have the required documentation including your June payroll records and bank account statements. Your patience in this regard is appreciated.
  • For those of you asking for a debt forgiveness calculator, our online application software will make the calculation process easy.

Changes Brought About By the New Law

The Paycheck Protection Program Flexibility Act signed into law on June 5 brought some much hoped for relief regarding the debt forgiveness phase of the program for many PPP borrowers. Following is an updated summary of the changes brought about by this law:

  • Extends the covered period during which the loan may be used for forgivable expenses from eight weeks following disbursement of the loan to 24 weeks from loan disbursement or Dec. 31, 2-2-, whichever is earlier. Borrowers who received loans before June 5 may elect to continue using the eight-week covered period. This is a big change and gives borrowers much needed flexibility to get all of their PPP funds spent within the timeline now required by the new rules. Eight weeks was a short timeline for many borrowers. On June 22, the SBA clarified that when a borrower chose to use the 24-week covered period has used all of its PPP funds, it can apply for forgiveness before the covered period is over. We realize some borrowers will need to wait out the full 24 weeks to be able to test the FTE Reduction Quotient. But, many won't that issue to deal with.
  • Lowers the amount that must be spent on payroll costs from 75 percent to 60 percent. This means that at least 60% of loan proceeds must be spent on eligible payroll expenses. Any amount less than 60% will result in a pro rata reduction in forgiveness. 
  • Extends the period in which employers may rehire or eliminate a reduction in employment, salary, or wages that would otherwise reduce the forgivable amount of a PPP loan to Dec. 31, 2020. However, the forgivable amount will be determined without regard to a reduction in the number of employees (compared to Feb. 16, 2020) if the recipient is (1) unable to rehire former employees and is unable to hire similarly qualified employees by Dec. 31, or (2) unable by Dec. 31 to return to the same level of business activity that existed by Feb. 15, 2020, due to compliance with federal requirements of guidance related to COVID-19.
  • 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 for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19, check here.
  • Replaces the six-month deferral of payments due under PPP loans with deferral until the date SBA pays the lender the amount of loan forgiveness. If a borrower fails to apply for loan forgiveness within 10 months after the last day of the covered period for forgiveness, the borrower must begin to make payments of principal, interest, and fees on its PPP loan. This provision reduces the chances borrowers would have to start making payments on their loan before they know if their loan will be forgiven or not.
  • Establishes a minimum maturity of five (5) years for new PPP loans originated on or after June 5, as opposed to the previous two-year maturity date. Lenders and borrowers, however, may mutually agree to modify the maturity terms of a PPP loan closed and disbursed prior to June 5.
  • Eliminates a provision that makes PPP loan recipients who have PPP debt forgiven ineligible to defer payroll tax payments. In the original rule, borrowers with forgiven PPP debt were prohibited from deferring payroll tax payments. This is now permitted under the new rules.
  • The final date to obtain a PPP loan remains June 30, 2020.

We will keep you posted on any further changes or clarifications that come out.

 

Topics: Financing, Cash Management, General Business, Government Loan Programs/Financing Options

 

Written by Dave Coggins

Dave is Executive Vice President - Chief Banking Officer of Investors Community Bank. He has been with the bank since 2009 and has over 40 years of lending and leadership experience, including 10 years as president of Business Lending Group and 24 years in various lending and leadership roles in the Farm Credit System. Dave holds a Bachelor’s Degree from the University of Wisconsin-River Falls. He is actively involved in many community/professional organizations, including serving as treasurer and finance committee chair for Progress Lakeshore and a member of the Wisconsin Bankers Association Government Relations Committee. He is also a past chair of the WBA Ag Bankers Section and is currently vice chair of the ABA Ag and Rural Bankers Committee.

 

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