On June 17, 2020, the United States Department of the Treasury and the Small Business Administration (SBA) issued additional guidance on the Paycheck Protection Program, specifically revising the Third and Sixth Interim Final Rules previously released. We have outlined the changes below.
Changes to the Third Interim Final Rule
- Removes the mention of the eight-week covered period and replaces it with a covered period of 24 weeks to use the loan. Loan recipients can elect to use the loan over 8 weeks if you received the loan prior to June 5, 2020.
- The rule was changed to include wording related to the extended minimum maturity of five years for loans made on or after June 5, 2020. It also updates the wording in the rule that permits lenders and borrowers to extend the maturity date of earlier PPP loans by mutual agreement.
- The wording was updated to replace the mention of 75% of the loan needing to be related to payroll costs and 25% related to nonpayroll costs in order to be eligible for forgiveness to the new rules of at least 60% of the proceeds need to be used for payroll costs and at most 40% can be used on nonpayroll costs
- The biggest change is related to the maximum amounts of payroll per employee. Previously, the maximum amount that could be forgiven per employee during the 8-week period was $15,385. During the 24-week period, the new maximum that could be forgiven per employee is $46,154. Both amounts would create an annualized salary of $100,000 which is the salary cap. These are not the same amounts for owner-employees or sole proprietors.
- We are awaiting additional guidance on the wording but in order to meet the maximum amount listed above of $46,154 per employee, it would imply that the loan recipient either wasn’t able to hire back their employees, find a qualified replacement for an employee, or wasn’t able to return to the same level of business activity in order to be able to pay an employee that much (unless their salary was $100,000 pre-pandemic).
- Sole proprietor’s owner’s compensation replacement if they elected 8 weeks, they would be eligible for forgiveness up to $15,385 (at the maxed-out level of $100,000) which is 8/52 worth of 2019 net profit. Under the 24-week period, 2.5 months’ worth (2.5/12) of 2019 net profit, up to $20,833 would be eligible for forgiveness. This would mean under the 24-week period the entire loan would be forgiven since the loan proceeds were calculated at 2.5 months of 2019 net profit which is the amount also being forgiven.
- We have previously covered the SBA’s Third Interim Final Rule here.
Changes to the Sixth Interim Final Rule
- Removes the mention of the eight-week covered period and replaces it with a covered period of 24 weeks to use the loan. Loan recipients can elect to use the loan over eight weeks if you received the loan prior to June 5, 2020.
- You can read the SBA’s Sixth Interim Final Rule here.