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PPP Recipients Can Apply Early for Loan Forgiveness – SBA New Interim Final Rule

On Monday night, 6-22-20 the SBA in consultation with the Treasury issued a new Interim Final Rule related to the Paycheck Protection Program (PPP), which was created by the CARES Act to provide forgivable loans to small businesses, not-for-profits, and other entities hurt by the economic impacts of the COVID-19 pandemic.

Highlights of the 6-22-20 Interim Final Rule (IFR)

The new interim final rule makes revisions to previous guidance to reflect the Paycheck Protection Program Flexibility Act of 2020, which became law on June 5, and made significant changes to the PPP.

Most of the changes implemented by the new interim final rule were covered in previous guidance and in the PPP loan forgiveness applications released last week. New material is the explanation of the process for applying for early forgiveness. PPP recipients can apply for loan forgiveness early, but that doing so could cost them money.

Early loan forgiveness applications

Many small businesses have inquired about whether they can apply for PPP loan forgiveness before their covered period expires. The new interim final rule says that if a borrower applies for loan forgiveness before the end of the covered period and has reduced any employees’ salaries or wages by more than the 25% allowed for full forgiveness, the borrower must account for the excess salary reduction for the full eight-week or 24-week covered period, whichever one applies to its loan.

Under that guidance, PPP borrowers that apply early for loan forgiveness forfeit a safe-harbor provision allowing them to restore salaries or wages by Dec. 31 and avoid reductions in the loan forgiveness they receive. For example, if a borrower has a 24-week period that ends in November but wants to apply in September, any wage reduction in excess of 25% as of September would be calculated for the entire 24-week period even if the borrower restores salaries by Dec. 31.

Other Highlights from Previously Issued IFR

  • Expanding to 24 weeks, from eight weeks, the covered period during which PPP loan recipients can spend the funds and still qualify for loan forgiveness. The 24-week period applies to all loans made on or after June 5. Borrowers that received loans before June 5 can choose to elect an eight-week period.
  • Lowering to 60% from 75% the payroll costs proportion of PPP funding

Questions or need assistance on the new forgiveness applications? Contact one of our experts at (888) 388-1040.

This information was last updated on 6-24-20 at 2:30 pm.

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