SBA provides more guidance on PPP Loan Forgiveness and Combining of EIDL and PPP funds

On June 22, 2020, the SBA provided additional guidance on PPP loan forgiveness.

Here are the highlights:

1. Borrowers can submit form SBA 3508, 3508EZ or a lender equivalent to the lending institution on or before the end of the maturity date of the loan – including before the end of the covered period – but no later than 10 months after the covered period ends or December 31, 2020, whichever is earlier. Loan proceeds must be spent before applying for forgiveness on those proceeds.

2. The bank will have 60 days from application of forgiveness to notify the SBA of the amount of forgiveness. The SBA will have 90 days to review the application and issue a final decision. The bank must notify the borrower of the amount forgiven, plus the due date and amount of the unforgiven portion due to the SBA.

3. Payroll costs are incurred on the day an employee’s pay is earned (the day worked). For non-working employees on payroll, costs are incurred on the schedule established by the borrower which is typically that day the employee would have performed work.

4. Compensation is capped for owner-employees (Schedule C filers and partners):

• $15,385 for the 8-week covered period or based upon the calculation of 2019 net profit, whichever is less. No other costs are forgivable.
• $20,833 for the 24-week covered period, or based upon the calculation of 2019 net profit, whichever is less. No other costs are forgivable.

5. For C Corp owner-employees, the payroll cap is $15,385/$20,833 (for either the 8- or 24-week covered period) plus retirement plan and health insurance benefits. Note that the compensation amount allowed is based on their 2019 compensation amount.

6. For S Corp owner-employees the payroll cap is $15,385/$20,833 (based on the 8- or 24-week covered period) plus retirement plan benefits. No health insurance is allowed. Note that the compensation amount allowed is based on their 2019 compensation amount.

7. All other employees can now earn up to $46,152 if electing the 24-week period.

Here is new guidance on the refinancing of the EIDL with the PPP loan:

An EIDL Loan May Not Be Refinanced with a PPP Loan When:

• The PPP Borrower received the EIDL loan before January 31, 2020 or after April 3, 2020.

An EIDL Loan is Not Required to Be Refinanced with a PPP Loan When:

• The PPP Borrower received funds from an EIDL loan from January 31, 2020 through April 3, 2020; and
• The PPP Borrower used the EIDL loan for purposes other than payroll costs.

A PPP Loan Must Be Used to Refinance the Full Amount of the EIDL Loan When:

• The PPP Borrower received funds from the EIDL loan from January 31, 2020 through April 3, 2020; and
•  The PPP Borrower used the EIDL loan funds to pay payroll costs.

We will continue to follow these developments and will provide additional information as we receive clarification. These are very challenging times. Please know that LB Goodman & Co is here to help you with your financial questions and concerns.

If you have any questions, do not hesitate to contact us.

As of June 25 2020