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Jan 2021
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January 27, 2021

SBA Issues FAQs and Interim Final Rule Related to PPP Loan Calculations and Loan Forgiveness

The Small Business Administration (SBA) has released new Frequently Asked Questions (FAQs) and issued a new Interim Final Rule (IFR) addressing “First Draw” and “Second Draw” Paycheck Protection Program (PPP) Loans authorized under the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act (Economic Aid Act).
 
The FAQs answer questions related to revenue reduction, maximum loan amount calculations for Second Draw PPP Loans and documentation a Second Draw PPP Loan borrower may submit to prove the required revenue reduction. The FAQs also provide detailed, step-by-step guidance on calculating the maximum Second Draw PPP Loan amount for different business entities. The FAQs can be found here .
 
The IFR consolidates previous guidance with new requirements under the Economic Aid Act. The IFR discusses the expanded payroll and non-payroll costs eligible for forgiveness, reductions in forgiveness, documentation requirements, SBA review of borrower application and lender fees. Further, the IFR introduces updated forgiveness application forms, which include a one-page forgiveness application (Form 3508S) for borrowers that received a PPP loan of $150,000 or less. Borrowers are not required to provide any supporting documentation with Form 3508S; however, borrowers are required to retain supporting documentation for up to four years following submission of the loan forgiveness application.
 
An eligible borrower seeking a Second Draw PPP Loan amount of $150,000 or less is not required, at the time of its loan application, to submit documentation to establish that the borrower experienced a 25% reduction in revenue. However, the borrower must submit such proof before or at the time of its application for loan forgiveness. Permissible documentation includes relevant tax forms, including annual tax forms, or, if the relevant tax forms are not available, a copy of the applicant’s quarterly income statements or bank statements.
 
The IFR further clarifies that a borrower’s covered period is the period beginning on the date the lender disburses the PPP loan and ending on a date selected by the borrower that occurs during the period: (i) beginning on the date that is eight weeks after the date of disbursement; and (ii) ending on the date that is 24 weeks after the date of disbursement. The covered periods for a First Draw PPP Loan and a Second Draw PPP Loan cannot overlap. Further, the borrower must use all proceeds of the First Draw PPP Loan for eligible expenses before disbursement of the Second Draw PPP Loan.
 
To avoid a reduction in loan forgiveness amounts for reductions in full-time employees (FTEs) or reductions in salaries and wages, a borrower receiving a PPP loan on or after December 27, 2020, must eliminate such reductions by the last day of the selected covered period. A borrower with a PPP loan of $50,000 or less is exempt from any reduction in the borrower’s loan forgiveness amount based on reductions in FTE employees or reductions in employee salary or wages that would otherwise apply. This exemption does not apply to borrowers that together with their affiliates received First Draw Loans totaling $2 million or more or Second Draw Loans totaling $2 million or more.
 
The IFR and updated loan forgiveness application forms apply to First Draw and Second Draw PPP Loans, and all PPP loans for which a loan forgiveness payment has not been remitted by the SBA as of December 27, 2020.

The rules surrounding PPP loans are complex and business specific. If you have concerns about the rules, please contact Matthew Crowe, Rob Davies, Charlie Goode, Philip Haywood, Timothy Hillegonds, Jeffrey Ott, Ford Turrell or your Warner attorney.

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