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PPP Roundup and a Simplified Borrowers’ Guide to PPP Updates

Joseph Most, J.D.

6.30.20 | Client Alert – COVID-19 Update

The Paycheck Protection Program (PPP), first signed into law on March 27, 2020 as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act and launched by the Small Business Administration (SBA) on April 3, 2020, has since undergone a number of revisions and clarifications to make this immediate economic relief more accessible to small businesses. The SBA has issued revised Interim Final Rules (IFRs), revised Borrower Applications, and revised Loan Forgiveness Applications, including the new short-form 3508EZ, and updated FAQs. Additionally, on April 24, 2020 the President signed the Paycheck Protection Program and Health Care Enhancement Act, which provided additional funding and authority for the PPP. On June 5, 2020, the President signed the Paycheck Protection Program Flexibility Act (PPPFA) into law  providing more time and flexibility to spend PPP funds. As of July 4, 2020, the window to apply for PPP loans has been extended from June 30, 2020 to August 8, 2020.

To bring some order to this virtual blizzard of information we have provided below, a summary of where things stand today in our PPP Roundup.


Generally, the program provides for SBA supported loans to eligible small businesses the amount of which is based on a multiple of the borrower’s average monthly payroll costs for a selected period.  If, and to the extent,  during a specified period (the covered period) following receipt of the loan proceeds the borrower uses the funds for certain payroll and other eligible expenses the loan will be forgiven upon submission of an application and supporting documentation to the lender.  A borrower’s forgiveness amount may also be impacted by its failure to maintain the number and compensation levels of employees.


Generally, most businesses, including nonprofits and veterans’ organizations, are eligible to receive a PPP loan if they:

  1. Were operational as of February 15, 2020;
  2. Had employees and/or independent contractors;
  3. Have 500 or less employees who are located in the U.S.; and
  4. Have been substantially impacted by COVID-19

However, a business with more than 500 employees may be eligible if it qualifies as a “small business concern” under section 7(a) of the Small Business Act.

For the 500 employee threshold, generally, companies with common ownership, including common control, are considered affiliated for this purpose and their employee counts are aggregated together for purposes of determining eligibility. However, the CARES Act includes a waiver of SBA affiliation rules for certain industries, including the restaurant and hotel industries. In specific, the program allows these businesses to be eligible so long as they have no more than 500 employees per location. An employee for these purposes includes both full-time and part-time workers.

Unlike other SBA relief programs, the PPP allows sole proprietorships and self-employed individuals to be eligible for a loan as well. However, the SBA has excluded rental real estate companies from eligibility as “passive” enterprises.

“Good Faith Certification”

When submitting the PPP application (revised June 12, 2020), all borrowers must make a good faith certification that the loan is necessary to support continuing operations1 and that they will use the proceeds for eligible costs.

Key Aspects of the Program

The Basics
Maximum Loan AmountThe lesser of:
• $10 million or
• 250% of the average monthly payroll costs for the 1-year period leading up to the date on which the loan is made.
These limitations apply to businesses in the hotel and restaurant industries on a per location basis.
Maturity2 years if loan was issued prior to June 5, 2020.2
5 years if loan was issued after June 5, 2020.
Interest Rate1%
Payment Deferral: Repayment of Principal & Interest BeginsThe earlier of:
• 10 months after the last day of the covered period, if the borrower does not apply for forgiveness before then; or,
• The date the SBA determines the loan is ineligible for forgiveness (in whole or in part).
Note: The lender must notify the borrower of the date the first payment is due.
Use of Loan Proceeds & Percent to Qualify for Full or Partial Forgiveness• Up to 60% of payroll costs (previously 75%);
• Up to 40% for the following nonpayroll costs (previously 25%):
     • Mortgage interest payments;
     • Rent;
     • Utilities; and
     • Interest on other debt obligations incurred prior to February 15, 2020.
Note: The last day to use the PPP funds is December 31, 2020.
Eligible Payroll CostsPayroll costs are calculated on a gross basis, meaning it includes employee-side Federal payroll taxes and excludes employer-side Federal payroll taxes. In addition to wages on a gross basis, payroll costs also include payments for:
• Vacation, parental, family, medical or sick leave;
• Allowance for dismissal or separation;
• The provision of group health care benefits, including insurance premiums. However, health insurance expenses of self-employed individuals, their spouses and dependents are not considered qualifying payroll costs for PPP purposes;
• Any retirement benefit; and,
• State and local taxes assessed on the compensation of employees.
Eligible Nonpayroll CostsA nonpayroll cost is eligible for forgiveness if it was:
• Paid during the covered period; or
• Incurred during the covered period and paid on or before the next regular billing date, even if the billing date is after the covered period.
Loan Forgiveness Covered Period Earlier of:
• 24 weeks from receipt of loan proceeds (previously 8 weeks); or
• December 31, 2020
Note: A borrower may apply for forgiveness before the end of the covered period if it used all of the loan proceeds for which it requests forgiveness.3
Maximum Forgivable Wages Per EmployeeIf 8-week covered period, $15,385 ($100,000 annual maximum prorated over 8 weeks).
If 24-week covered period, $46,154 ($100,000 annual maximum prorated over 24 weeks).
Maximum Forgivable Compensation4 Per Owner-employees & Self-employed Individuals If 8-week covered period, the lesser of $15,385 or 15.38% of 2019 compensation.
If 24-week covered period, the lesser of $20,833 or 20.83% of 2019 compensation.
Maximum Forgivable Compensation Per General Partners20.83% of 92.35% of the General Partner’s 2019 self-employment earnings with a cap of $15,385 if using an 8-week covered period and $20,833 if using a 24-week covered period.
Income Taxation of Forgiveness and Covered ExpensesAny amount of PPP indebtedness forgiven is not taxable as cancellation of debt income to the borrower.

Currently, IRS Notice 2020-32 would deny a deduction for any expenses paid from PPP Loan proceeds that are ultimately forgiven.5
Effect of Full Time Equivalent Employee (FTE) and Compensation Reduction Restoration Safe Harbors on Loan Forgiveness
Restoration Period Borrowers have until December 31, 2020 to make up for a FTE reduction or a salary/hourly wage reduction (previously June 30, 2020).6
Employee Unavailability No FTE reduction if a borrower can document an inability to:
• Rehire those who were employed on February 15, 2020 by December 31, 2020;
• Hire a similarly qualified employee by December 31, 2020; or
• Return to the same level of business activity it engaged in before February 15, 2020 due to compliance with COVID-19 related HHS, CDC, or OSHA guidance between March 1, 2020 to December 31, 2020.7
Employee Who Declined Offer to Rehire or Restore Reduced HoursNo FTE reduction for employees who declined a borrower’s offer to rehire or declined an offer to restore an employee’s previously reduced hours.8
Employee Termination or ResignationNo FTE reduction for employees who were fired for cause, voluntarily resigned, or voluntarily requested a schedule reduction.
Allowable Wage Reduction A reduction in an employee’s salary or wages of no more than 25% will generally not result in a reduced loan forgiveness amount.

A wage reduction in excess of 25%, applied to an employee who earns over $100,000 does not reduce the amount of loan forgiveness.
Interaction with Other Provisions
Payroll Tax Deferral Loan recipients may defer payroll taxes under section 2302 of the CARES Act (previously, payroll tax deferral was prohibited once a PPP borrower submitted a loan forgiveness application).
Qualified Sick and Family Leave (FFCRA)Qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the FFCRA are excluded from payroll costs for PPP purposes.
Employee Retention CreditAn employer is eligible for the Employee Retention Credit if it repaid its PPP loan by May 18, 2020.
How to Apply for Loan Forgiveness & Document Retention Requirements
Forms Borrowers May Submit to LendersIf borrower has no reduction to its loan forgiveness amount due to a failure to maintain its FTE or compensation levels, submit Form 3508EZ (or lender equivalent).9
All others must submit Form 3508 (or a lender equivalent).
Deadline to Submit a Loan Forgiveness Application (revised June 16, 2020)Within 10 months after the last day of the covered period.
Lender & SBA Decision Timeline The lender must issue a decision to the SBA:
• No later than 60 days after receipt of a complete loan forgiveness application from the borrower.
The SBA must complete its review and issue a decision to the lender:
• No later than 90 days after the lender issues its decision to the SBA
Note: The lender will then notify the borrower of the forgiveness amount.
Borrower RecordkeepingA borrower should maintain the following documentation for six years after the date of forgiveness or repayment:
• Payroll registers or ledgers;
• Payroll tax filings or Form 1099-MISC;
• Health insurance invoices and payments;
• Payments for retirement amounts;
• Support for rent expense (lease and canceled checks/Automatic Clearing House (ACH) or wire transfer evidence);
• Support for interest paid on debt obligations;
• Evidence of utilities paid including invoices; and
• State and local payroll tax payments (e.g., for New York State, the MCTMT and State unemployment insurance) supported by tax returns, vouchers, or other documentary evidence.

We recommend you review the SBA’s PPP Loan Forgiveness Application and reach out to your Berdon Advisor if you have any questions or concerns.

1 A safe harbor applies to any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million. These borrowers will be deemed to have made the required certification concerning the necessity of the loan in good faith.

2 Lenders and borrowers may mutually agree to amend the terms of existing loans that originated prior to June 5, 2020 to reflect the longer maturity date.

3 Salary reduction calculations would still be based off of 24 weeks, even if the borrower submits its loan forgiveness application before the end of 24 weeks.

4 Maximum forgivable compensation includes health insurance contributions made on behalf of C corp. owner-employees, self-employed individuals, and general partners. Health insurance contributions made on behalf of S corp. owner-employees are excluded, as they are a component of cash compensation.

5 It is possible that either Congress passes a law to reverses the IRS’s position on this matter or that the IRS withdraws the position on its own.

6 This provision applies to borrowers who reduced either FTE or salary/hourly wages between February 15, 2020 and April 26, 2020.

7 COVID-19 related guidance issued by the HHS includes compliance with state and local mandates (e.g., “shelter-in-place” orders, non-essential business closures, etc.).

8 The offer to rehire must be made in good faith and the borrower must maintains records documenting the offer and rejection.

9 Refer to the instructions to Form 3508EZ for qualification criteria.