Recently, the Small Business Administration (SBA) released two new Interim Final Rules (IFRs) to modify previously issued guidance on the Paycheck Protection Program (PPP). On June 22, the SBA released IFR 20, Revisions to Loan Forgiveness Interim Final Rule (IFR 14) and SBA Loan Review Procedures Interim Final Rule (IFR 15). On June 24, the SBA released IFR 21, Additional Eligibility Revisions to First Interim Final Rule (IFR 1). Below is a summary of both IFRs.
IFR 20 makes changes to IFR 14 and IFR 15 as follows:
| Per IFR 14 || As Modified per IFR 20 |
Loan forgiveness amount may include eligible nonpayroll costs, as long as those costs do not exceed 25 percent of the total amount forgiven.
Loan forgiveness amount may include eligible nonpayroll costs, as long as those costs do not exceed 40 percent of the total amount forgiven.
The process for loan forgiveness states that borrowers should start by completing Form 3508 or lender equivalent loan forgiveness form.
Further, it notes any amount not forgiveness must be repaid within two years.
IFR 20 modifies the forgiveness process by including the addition of Form 3508EZ that could be utilized if the borrower meets certain requirements.
Further, it removes the two-year term and replaces it with the term “maturity date,” as this can now vary from two to five years.1
Notes that the lender is responsible for notifying borrowers of the amount not eligible for forgiveness and of the day the first loan payment is due.
IFR 14 does not clarify when borrowers may apply for loan forgiveness
The loan forgiveness application may be submitted prior to the loan’s maturity date, including prior to the end of the covered period “if the borrower has used all of the loan proceeds for which the borrower is requesting forgiveness.” However, if the application is not submitted prior to 10 months subsequent to the end of the covered period, the borrower must begin making principal and interest payments on the loan.
For those applications submitted prior to the end of the covered period, the borrower must still consider the full covered period when determining whether a reduction of salaries or wages occurred in excess of 25 percent.
IFR 14 makes multiple references of the “covered period” being eight weeks.
As the covered period has changed to be either eight weeks or 24 weeks (not to surpass Dec. 31, 2020), IFR 20 updates IFR 14 to reflect the change in definition of covered period.1
Forgiveness for payroll for owner-employees and self-employed individuals are capped at the lesser of $15,385 or 8/52 of 2019’s compensation.
Forgiveness for payroll for owner-employees and self-employed individuals are capped at the lesser of $15,385 or 8/52 of 2019’s compensation, if using the eight-week covered period. For the 24-week covered period, the cap is equivalent to the lesser of $20,833 or 2.5/12 of 2019’s compensation.
IFR 20 additionally states that the payroll cost for C-corporation owners includes cash compensation, employer retirement and health insurance contributions made on their behalf; however, S-corporation owner payroll only includes cash compensation and employer retirement contributions. For self-employed individuals, including Schedule C or F filers and general partners, retirement and health insurance contributions are included in their net self-employment income and therefore cannot be separately added to their payroll calculation.
Reduction in forgiveness will apply if the FTE or salary or wages is reduced during the covered period, unless these are restored by June 30, 2020. The forgiveness application notes exceptions to this rule as it relates to employees who were offered to return back to work but rejected the offer.
Reduction in forgiveness will apply if the FTE or salary or wages is reduced during the covered period, unless these are restored by Dec. 31, 2020. The forgiveness application notes exceptions to this rule as it relates to employee availability and business activity.1
IFR 20 also revised IFR 15 to capture the following within the lender review process:
- Change from 75 percent to 60 percent of forgiveness must be payroll related.1
- The new Loan Forgiveness Application, Form 3508EZ.2
- For borrowers using the new Form 3508EZ, lenders must provide this form, along with the optional demographic information form to the SBA, but not Schedule A, as required for those utilizing Form 3508.
IFR 21 makes changes to the eligibility requirements noted in IFR 1. IFR 1 noted ineligibility to PPP funds for businesses where an owner who has more than 20 percent ownership is incarcerated, subject to an indictment, criminal information, or arraignment, been convicted of, pleaded guilty to, or started parole or probation in relation to a felony within the last five years; however, IFR 21 further details ineligibility requirements still remain when an owner of 20 percent or more of the equity of the applicant is presently incarcerated or, for any felony, presently subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction; or has been convicted of, pleaded guilty or nolo contendere to, or commenced any form of parole or probation (including probation before judgment) for a felony involving fraud, bribery, embezzlement, or a false statement in a loan application or an application for federal financial assistance within the last five years or any other felony within the last year.
 The update reflects changes from the Flexibility Act.
 Refer to DHG Knowledge Share regarding the new EZ form.