SBA and Treasury Release Revisions to Interim Final Rules on Loan Forgiveness and Loan Review Procedures
By Benjamin E. Streckert, Mary Ellen Schill and Amy E. Ebeling
June 24, 2020
On Tuesday evening (June 22nd), the Small Business Administration (SBA) and Department of the Treasury released revisions to the interim final rule on forgiveness (issued May 22nd) and the interim final rule on loan review procedures (issued May 22nd). The revisions can be found here and are intended to update the rules in light of the Paycheck Protection Program Flexibility Act signed into law on June 5th.
The most significant aspect to note is the revised rule clarifies borrowers (whether using the eight week or 24-week covered period) can apply for forgiveness prior to the end of the covered period if the borrower has used all of the loan proceeds for which the borrower is requesting forgiveness. However, the forgiveness reduction at least as it relates to the reductions in salary/wages is still extrapolated through the entire covered period (eight weeks or 24 weeks). The revised rule gives the following example:
Example: A borrower is using a 24-week covered period. This borrower reduced a full-time employee’s weekly salary from $1,000 per week during the reference period to $700 per week during the covered period. The employee continued to work on a full-time basis during the covered period, with an FTE of 1.0. In this case, the first $250 (25 percent of $1,000) is exempted from the loan forgiveness reduction. The borrower seeking forgiveness would list $1,200 as the salary/hourly wage reduction for that employee (the extra $50 weekly reduction multiplied by 24 weeks). If the borrower applies for forgiveness before the end of the covered period, it must account for the salary reduction for the full 24-week covered period (totaling $1,200).
It is unclear whether forgiveness reductions relating to an FTE reduction during the covered period will be treated similarly for borrowers that apply for forgiveness before the end of the covered period.
The revisions also include additional clarifications on the FTE reduction safe harbors for situations in which a borrower can document that a failure to cure an FTE reduction is due to an inability to hire similarly qualified employees, an inability to return to the same level of business activity due to compliance with governmental requirements or guidance, or employees’ refusal of offers to return.
Finally, the new interim rule provides guidance on the loan forgiveness process as well, including clarifying that borrowers have until the maturity date of their loans to apply for forgiveness. A lender also does not need to independently verify borrowers’ reported information if the borrower submits documentation supporting its request for forgiveness and attests that it accurately verified payments for eligible costs.
While these are some of the more notable insights from the recent changes, there are others. Borrowers and lenders alike should carefully review the revisions. Ruder Ware is available to assist as you determine how they may affect your business.
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