Understanding the Updated PPP Loan Criteria

by on Jun 11, 2020 5:24 PM

Understanding the Updated PPP Loan Criteria

On this week’s Trilogy Town Hall Call, we discussed The Paycheck Protection Program Flexibility Act (PPPFA) that was passed on June 5th, allowing businesses more flexibility in using the loan funds.

We thank our guests, Jim Haefele, CPA – Partner at Haefele Flanagan, Doug Brown, Esq. – Partner at Norris McLaughlin and Trilogy Alliance Partner Christine Connolly who graciously donated their time to help business owners understand and navigate the changes during our one hour Q&A.


What are the changes as a result of the Payroll Protection Program Flexibility Act (PPPFA)?

  • The minimum maturity of PPP loans (for the portion not forgiven) is extended from two to not less than five years. This applies only to PPP loans originated on or after 6/5/2020.
  • The period during which the PPP loan proceeds can be used (“covered period”) is extended from eight weeks to 24 weeks from the date of origination (but not later than December 31, 2020). Borrowers with loans predating the PPPFA can elect to use the original 8- week covered period.
  • Extension of time to rehire employees and restore wages to 12/31/2020.
  • At least 60% of the loan amount must be used for eligible payroll costs and up to 40% can be used for eligible mortgage interest, rent and utilities. Previously, the ratio was 75%-25%.
  • Terms for the deferral period on the payment of any principal, interest and fees on a PPP loan is delayed until the date on which the amount of forgiveness is remitted to the lender by the SBA.
  • SBA has extended possibility of auditing companies below the $2M loan threshold.

Will the loan forgiveness application be revised to reflect the PPPFA?

  • Yes, a new application will be available but uncertain as to when.

I don’t see anything on the application for entry of guaranteed payments for partners in an LLC.  Should a partner be entered as an employee in Table 1 on Schedule A Worksheet?

  • The eligible compensation of anyone who is an owner goes on schedule A – Line 9 and should not be included in Table 1.

I put in for what would be the total over 8-weeks of my normal monthly draw, just to cover my PAY—which would total $17,500 but now the loan will only “forgive” as much as $15,385.  Why is this now capped?

  • Under the CARES Act, forgiveness was capped at an annualized $100K: 100K/52weeks x 8weeks = $15,385
  • Expectation is that rule will change with extension of the covered period to 24 weeks, so that the annualized cap of $100,000 is pro-rated to 24 weeks instead of 8.

Would payments on a business-use automobile count in the forgiveness equation? How about internet/technology fees? Does that fall under “utility?”

  • Payment of interest on a loan secured by a vehicle is forgivable, but not payments of the loan principal. Name of borrower must match the name on the equipment loan.
  • Leases for property or equipment signed prior to 2/15 are eligible for forgiveness.
  • Gasoline for business use automobiles is eligible for forgiveness.
  • Internet access fees are eligible for forgiveness.

Could you more clearly explain the phrase: includes all applicable reductions due to decreases in the number of full-time equivalent employees and salary/hourly wage reductions?

  • Loan forgiveness considers the following calculation: Permissible expenditures during the covered period minus reductions, if applicable, based on (a) reduced employee headcount (reduction in # of FTEs) and (b) reductions in cash compensation paid to those employees making under $100K, to the extent reduced by more than 25%.

In Schedule A, do I fill in Table 1 only if I received less than 100k in 2019, and Table 2 if I received more than 100k?

  • Anyone who is an owner goes on schedule A – Line 9, not on Table 1.
  • For non-owner employees: those making less than 100K are included in Table 1, and those making more than 100K are included Table 2

Does annualized rate of more than $100,000 for any pay period in 2019…. include anyone who had made an annualized rate of $100k in any one or more pay period OR the total over a year?

  • Unclear at this time

Explain the difference between Cash Compensation (in Schedule A) and Average FTE and then “reduction” as it relates to FTE Reduction Safe Harbor.

  • If a business has not reduced FTE headcount, or salaries and wages more than 25%, then the eligible loan forgiveness amount will not be reduced, so there would be no need to analyze whether Safe Harbors apply.

If a PPP recipient layoffs or furloughs one (1) employee during the program period does that jeopardize the forgiveness of the entire loan?

  • No – although the loan forgiveness amount is reduced, the amount of the reduction is proportionate to the actual reduction of FTE.

If our 8 weeks are over and we elect to lay off 2 employees, should we lay them off now or wait until after June 30th and extend the loan through 12/31/2020?

  • Work with financial advisor to see what model makes the most sense for your business. A borrower that received loan proceeds prior to the date of enactment of the PPPFA may elect to end the covered period eight weeks from the date of origination of the loan so as not to be required to maintain payroll levels for an additional 16 weeks, which could impact the amount of loan forgiveness.

What is the tax implication of PPP Flexibility Act?

  • No mention in PPPFA of IRS’s current position that expenses paid with PPP loan proceeds are not deductible for federal income tax purposes. Decision is still in Senate financing committee.
    PPP loan forgiveness amount is not included in the borrower’s gross income.

If I received my loan prior to June 5th, am I required to use 75% or 60% on payroll?

  • 60% is the new threshold for all loans, based on joint announcement by the Treasury Secretary and the SBA Administrator

If our company is just under the 60% payroll rule, what can we do to reach the 60% threshold?

  • Bonus pay is an option, but 1) bonus payment must be made in the covered period and 2) cash compensation (salary and bonus) cannot exceed a pro-rated portion of $100K annual compensation rate. Prepaying future vacation pay or other amounts accruing after the end of the covered period is not permitted.

Are there any restrictions for Single Proprietors?

  • Single proprietors calculate owner compensation replacement amount by multiplying the 2019 net income on your Schedule C by 8/52.

Is it mandatory to apply for forgiveness?

  • Currently uncertain.

How do I calculate the number of FTEs for loan forgiveness?

  • Calculation is still unclear. May be resolved with new application.

Is it true that under the PPP Flexibility Act that both the loan application window and forgiveness window have been extended?

  • No, the final date on which PPP loan applications can be approved (subject to available funding) remains June 30, 2020.
  • Yes, the forgiveness window has been extended from 8 weeks to 24 weeks or December 31, 2020 – whichever comes first.

What are the loan period, interest rate, and other terms of the loan under the PPP Flexibility Act?

  • Loans made after the signing of the PPPFA (6/5/2020) have a 5-yr maturity.
  • Term is 2 years if you received your loan before 6/5/2020 however, nothing prohibits lenders and borrowers from mutually agreeing to modify the maturity terms of existing loans to conform to this requirement.
  • Rate of interest stayed at 1%.
  • Deferral of loan payments extended from 6 months until the date loan forgiveness is remitted by SBA to the lender

What is the timing of costs incurred and paid and is it different for payroll vs. non-payroll costs?
Non-payroll must be paid or incurred during the covered period

  • Payroll must be paid or incurred during the covered period
  • Costs incurred but not paid during the covered period are eligible if they are subsequently on or before their due date.
  • Neither payroll nor non-payroll can be prepaid

What factors can result in reduction of loan forgiveness?

  • Reduction in headcount (reduction in # of FTEs)
  • Reduction in pay (salaries for those not capped at $100K reduced by more than 25%).

Are there any exceptions based on employee availability and/or social distancing/safety requirements?

  • Additional safe harbors allowing borrowers to achieve full PPP loan forgiveness are provided for reductions in FTEs due to –
    • i. A documented, good faith effort to rehire laid off employees or hire similarly qualified employees for unfilled positions but could not do so.
    • ii. Inability to return to your pre-February 15th level of business activity due to compliance with requirements or guidance issued by HHS, CDC or OSHA related to standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID– 19.
  • Document all written offers to employees with written response.
  • Reason that employee declines (childcare issues, concern about safe work environment, etc.) does not affect loan forgiveness calculations.

What certifications/documents are required for forgiveness?

  • Certifying that you went through all calculations
  • Loan was used to pay for costs eligible for forgiveness
  • Verified payments for payroll and non-payroll costs
  • Provided bank all documents that are requested, will vary by lender
  • Tax documents must be the same that will be provided to IRS

What is the timeline for a decision on loan forgiveness?

  • Banks have 60 days after borrower submits application to respond
  • Uncertain when the SBA’s revised form of application adapted to changes in the PPPFA will be ready

How long do I need to keep my documents following the loan forgiveness application?

  • 6 years

About Hal Levenson

Hal Levenson is the Founder and Chief Visionary Officer at Trilogy Partners. Trilogy Partners is an advisory & implementation firm whose mission is to help companies grow and transform.  We accomplish this by focusing on 3 critical business areas: Financial, Strategy & People.


DISCLAIMER: Please check with your trusted professionals prior to acting for your business. This Q & A recap should not replace professional services from legal, financial, payroll, HR, insurance, or consulting professionals. If you need a resource in one of these areas, please reach out to Hal Levenson at hlevenson@gettrilogypartners.com or contact Trilogy Partners at 609-688-0428.

Also, as expressed by the professionals on the call, it is critical that you do a personal examination of the many factors of your business to make the best decision for you and your employees.