On Friday night, the Small Business Administration (SBA) issued two new Interim Final Rules, providing additional guidance on the Loan Forgiveness Application and Instructions and the SBA loan review process.

Below we note some of the significant details:

  • Payroll Costs are defined in more detail and include cash tips, paid leave, payments for group health coverage, and retirement benefits
  • Payments for interest, rent, and utilities are also defined further.  Importantly, prepayments of interest are not eligible for forgiveness.
  • Utilities are defined to include “the distribution of electricity, gas, water, transportation, telephone, or internet access.”
  • The “75% Rule” has been clarified: the amount forgiven must consist of at least 75% Payroll Costs, but this does not mean that there will be no forgiveness at all if Payroll Costs make up less than 75% of the total loan amount.  Instead, the amount forgiven for interest, rent and utilities is capped at one-third of the amount of Payroll Costs
  • The Alternative Payroll Covered Period is explained in greater detail, and will allow borrowers to use their normal payroll period
  • Hazard pay, bonuses, and payments to furloughed employees qualify as Payroll Costs
  • Salaries for employees who are shareholders in their companies will be forgiven only to the extent they do not exceed the lesser of $15,385 or 8/52nds of their 2019 compensation.
  • There is no forgiveness for retirement or health insurance contributions made for self-employed individuals or general partners
  • In calculating the loan forgiveness amount, employees who were laid off will not count toward a reduction in workforce if the borrower offered to re-hire the laid-off employee and the employee rejected the offer, and other certain criteria are met.
  • Employees who were fired for cause or voluntarily quit will also not count toward a reduction in workforce.
  • A reduction in the number of employee’s hours will not be counted as a reduction in compensation for the 75% Rule, meaning borrowers will not be double penalized for both a headcount and wage reduction.
  • Borrowers must keep records of their PPP documentation for six years after the loan is either forgiven or repaid in full.

Follow this link for the full text of the Interim Final Rule on the Loan Forgiveness Application and Instructions.

Follow this link for full text of the Interim Final Rule on the SBA loan review process.