Updated Guidance for the Paycheck Protection Program

Additional Funding

On April 24, 2020, President Trump signed the Paycheck Protection Program and Health Care Enhancement Act (PPP & HCE Act), which includes provisions for $310 billion of additional funding to restart the Paycheck Protection Program (PPP). The bill is the fourth passed to address the economic impact of Covid-19.

In addition to the PPP funding, the PPP & HCE Act includes $60 billion for the Small Business Administration’s Economic Injury Disaster Loan (EIDL) and grant program. Of that amount, $10 billion is for emergency grants (loan advances) of up to $10,000 that do not have to be repaid, and $50 billion is to fund loans under the EIDL.

It is anticipated that the second round of funds will go quickly. Those that already applied for an EIDL and loan advance are in the queue, and will be processed on a first come first serve basis.  New applications for EIDLs are being accepted on a limited basis at this time.[1] As of this writing, PPP loans applications are still being taken.  A list of lenders is available on the SBA website.

Loan Forgiveness

PPP loans offer 8 weeks of loan forgiveness when used to maintain payroll, rent, mortgage interest, or utilities. Payroll costs includes employer contributions made to work sponsored retirement plans as well as group health care benefits, employee salaries (up to $100k per employee), and state and local taxes assessed on compensation.[2]

Updated guidance from the Treasury states the eight-week period begins on the date the lender makes the disbursement of the PPP loan to the borrower.[3]  The SBA states that loan forgiveness is based on maintaining or quickly rehiring employees to maintain salary levels.  At least 75% of the amount forgiven must have been used for payroll.

Taxation on Debt Forgiveness

While the CARES Act specified that any forgiveness “shall be excluded from gross income”, the IRS has recently issued guidance that there would be no tax deductibility of expenses that are included in loan forgiveness. Per the IRS, any income associated with the forgiveness is excluded from gross income; effectively nullifying the CARES Act’s provision, for now.

Businesses who have already received PPP loans should be aware of vital clarifications

The Safe Harbor deadline to return funds if ineligible has been extended to May 18. The Paycheck Protection Program’s fast rollout and “ready fire aim” approach has created a good bit of controversy.  To speed the process, the SBA allowed banks protection from verifying the truth of applicant’s statements.  Couple that with constantly changing guidance and a true bank run on limited funds, it created an environment where mistakes and fraud almost certainly occurred. 

Facing blowback, Treasury Secretary Mnuchin announced that all recipients of loans over $2m will be audited to confirm borrower eligibility and need.[4] The Treasury’s updated FAQ reminds us that:

“Before submitting a PPP application, all borrowers should review carefully the required certification that ‘[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.’  Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.” 

The SBA issues an interim final rule on May 8 stating,

“Any borrower that applied for a PPP loan and repays the loan in full by May 14, 2020 will be deemed by SBA to have made the required certification concerning the necessity of the loan request in good faith”.

The SBA further extended the repayment date to May 18, 2020 to give borrowers time to review the updated guidance regarding good-faith certification.

We believe business owners would be well served to document how that economic uncertainty could impact their operations. 

Updated May 14, 2020

[1] “Economic Injury Disaster Loan Emergency Advance,” SBA.gov, n.d., (Source)

[2] “Paycheck Protection Program (PPP) Information Sheet: Borrowers,” Treasury.gov, April 3, 2020, (Source)

[3] “Paycheck Protection Program Loans; Frequently Asked Questions (FAQs),” Treasury.gov, April 29, 2020, (Source)

[4] Noah Manksar, “Coronavirus small-business loans over $2 million will be audited: Mnuchin,” New York Post, April 28, 2020, (Source)