Partial Forgiveness for PPP Still Possible If 60% Threshold on Payroll Costs Are Met
Business owners who received a PPP loan will no longer fret over the original 75% requirement to use their loan towards payroll costs. On Monday, U.S. Treasury Secretary Steven T. Mnuchin and Small Business Administration (SBA) Administrator Jovita Carranza issued a statement regarding updates and improvements to the Paycheck Protection Program (PPP) Flexibility Act (HR 7010).
When the original PPP forgiveness information was published, we found the lack of clarification explaining how to calculate payroll costs difficult to interpret. With the passage of HR 7010, (page 2, §8), the following provides additional details and clarity regarding the limitation on forgiveness:
‘‘(8) LIMITATION ON FORGIVENESS.—To receive loan forgiveness under this section, an eligible recipient shall use at least 60 percent of the covered loan amount for payroll costs, and may use up to 40 percent of such amount for any payment of interest on any covered mortgage obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation), any payment on any covered rent obligation, or any covered utility payment.’’
In their press release, Mnuchin and Carranza explained that the SBA, in consultation with the U.S. Treasury, will promptly issue rules and guidance; a modified borrower application form; and a modified loan forgiveness application implementing these legislative amendments to the PPP. The modifications will implement a change to the eligibility requirements for loan forgiveness including:
“Lower the requirements that 75 percent of a borrower’s loan proceeds must be used for payroll costs and that 75 percent of the loan forgiveness amount must have been spent on payroll costs during the 24-week loan forgiveness covered period to 60 percent for each of these requirements. If a borrower uses less than 60 percent of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60 percent of the loan forgiveness amount having been used for payroll costs.”
If you have questions regarding your forgiveness application, we recommend that you speak with your loan provider. If you need additional assistance, or have questions on how to proceed, please know we are available to speak with you by phone at 215-675-8364.
DISCLAIMER: The WM Daily Update COVID-19, COVID-19 Business Resources and COVID-19 Client News Alerts and other related communications are 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.
