SBA, Treasury release more guidance on PPP loan forgiveness

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Better late than never.

More than two weeks after a congressional deadline passed, the Small Business Administration and the Treasury Department late Friday released the application borrowers will use to seek forgiveness for Paycheck Protection Program loans, along with detailed instructions for its completion.

The 11-page application document contains measures that will benefit borrowers, including an option that lets small businesses calculate payroll costs using an “alternative" eight-week covered period that aligns with their regular payroll cycles. It also includes an exemption from the loan forgiveness reduction for borrowers who have made "a good-faith, written offer to rehire workers that was declined."

Borrowers will be able to count any payroll and eligible nonpayroll expenses incurred — but not paid — during the covered period, as long as they are paid by the next regular payroll or billing date. There had been concerns that only expenses that were paid during the covered period would be allowed to count toward forgiveness.

The agencies did not reduce a requirement that 75% of the borrowed funds be used for payroll. The stipulation was not written into in the language of the coronavirus stimulus package that created the $660 billion lending program. The SBA and Treasury added it in regulations implementing the program.

Banking advocates, including the Independent Community Bankers of America, have urged the agencies to adjust the split to allow for a higher percentage of nonpayroll spending.

The application document also includes guidance on how to calculate a reduction in the forgiveness amount for borrowers that spent less on payroll during their covered periods than they did during the first quarter. The reduction would be deducted from the forgiven amount, though there is an exemption if a borrower can show that employees rejected a good faith offer to rejoin their company.

Additionally, borrowers can obtain safe harbor from forgiveness reduction if they can show that by June 30, they restored their workforce to the level in place on Feb. 15.

The agencies' guidance comes two days after they issued a blanket safe harbor for PPP loans totaling less than $2 million.

According to the stimulus package, forgiveness guidance was due by late April. As the deadline slipped, advocates for lenders and borrowers increasingly called for “clear, bright-line guidance.”

“Think about this ... a program designed on the premise of forgiving loans still has no process by which to forgive those loans,” Tony Wilkinson, president and CEO of the National Association of Government Guaranteed Lenders, said Wednesday during a virtual roundtable event sponsored by the House Small Business Committee.

While lenders and borrowers are likely to be disappointed by the decision to retain the 25% limit on nonpayroll expenses, the initial reaction by many Friday was one of relief that some instructions had been provided.

“A standardized forgiveness application alongside with a step-by-step worksheet for borrowers will help small businesses calculate the amount of forgiveness,” the Consumer Bankers Association said in a press release.

The SBA said it would issue more regulations and guidance “soon … to further assist borrowers as they complete their applications, and to provide lenders with guidance on their responsibilities.”

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