PPP LOAN FORGIVENESS: THREE KEY UPDATES
The SBA had been fairly quiet recently on the Paycheck Protection Program ("PPP") loan forgiveness processes until early October when a few announcements were made within a week's time. The key items included information on ownership transitions involving PPP loans, clarification on the deferral period for loan payments, and a simplified application for loans equal to or less than $50,000.
First, on October 2, the SBA published a procedural notice to clarify procedures for any changes in ownership of an entity that has received PPP funds. Changes in ownership that qualify include at least 20% common stock or ownership interest sold or transferred, PPP borrower sells or transfers at least 50% of its assets, or PPP borrower merges with or into another entity. In all instances, the PPP borrower remains responsible for performance of all PPP loan obligations, certifications and compliance. There are different procedures required depending on the circumstances (if the note is fully or partially satisfied) outlined below. In either case, the PPP borrower is subject to all obligations under the PPP loan unless merged into another entity, in which case the new owner will be obligated to fulfill all requirements.
PPP note fully satisfied
- No restrictions on the change in ownership if prior to the sale or transfer, the borrower has repaid the PPP note in full or completed the loan forgiveness process.
- Loan forgiveness process completion means the SBA has remitted funds to the PPP lender in full satisfaction of note, or the PPP borrower has repaid any remaining balance on the loan.
PPP note not fully satisfied
- SBA approval may or may not be needed prior to transition depending on the situation.
- Approval not needed -
- Sale or transfer is 50% or less of common stock/ownership interest
- Change is structured as sale or merger, PPP borrower completes the forgiveness application, and an interest-bearing escrow account holds funds equal to the outstanding PPP loan that is controlled by the PPP lender.
- Change is structured as asset sale of 50% or less of its assets, PPP borrower completes the forgiveness application, and an interest-bearing escrow account holds funds equal to the outstanding PPP loan that is controlled by the PPP lender.
- Approval needed -
- If the situations listed above do not apply, then SBA approval is needed prior to change in ownership and the PPP lender may not make determination alone.
- Various documentation must be submitted to the SBA loan servicing center, and the SBA may require additional risk mitigation measures as a condition of their approval.
- SBA has 60 calendar days after receipt of documentation to review and provide determination.
Second, on October 7, clarification was provided on the deferral period for payments of principal, interest, and fees in the published Frequently Asked Questions found here. The Paycheck Protection Program Flexibility Act of 2020 ("Flexibility Act") extended the deferral period to either the date the SBA remits the borrower's loan forgiveness amount or 10 months after the end of the loan forgiveness covered period if the borrower doesn't apply for forgiveness. The original six-month deferral period is automatically extended to 10 months for all PPP loans, and lenders are required to notify extension of the deferral period (but no formal modification of promissory note is required).
Third, on October 8, a new PPP Loan Forgiveness Form 3508S was created for PPP loans equal to or less than $50,000. If the PPP loan falls under this threshold, borrowers are exempt from any reductions in forgiveness for both the full-time equivalent reduction and the reduction of salary or hourly wages in the covered period. However, to file Form 3508S, borrowers must be evaluated with their affiliates and cannot have received total loans of $2 million or greater. All other PPP loan forgiveness rules are still in place for Form 3508S, including but not limited to spending at least 60% for payroll and capping the amount of compensation paid to owners ($15,385 for eight week period or $20,833 for 24 week period). The new Form 3508S can be found here.
If we can assist you with understanding the programs' forgiveness provisions, analyzing your loan forgiveness opportunity and application or assist you with gathering loan forgiveness information needed, please call any Sponsel CPA Group Team member or our colleagues listed below.
This communication is intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.