UPDATE: WBA Receives Conflicting Information Regarding Impact of EIDL Advance/Grant on PPP Loan
Since the release of the updated PPP-related information below late yesterday afternoon, WBA has received conflicting information regarding the impact of an EIDL advance/grant on a PPP loan. As was reported, with regard to the EIDL advance/grant if the advance/grant was not used for the same purpose as the PPP loan, the EIDL advance/grant does not need to be reported on the forgiveness application and it will not be deducted from the forgiveness proceeds. WBA has since received conflicting information regarding that treatment. Until such time as WBA can reconfirm the treatment of an EIDL advance/grant that is not used for the same purpose as the PPP loan, borrowers should be conservative in their approach and note the entire amount of an EIDL advance/grant on the forgiveness application for the entire amount to be deducted from forgiveness proceeds paid by SBA to lender pursuant to a completed, submitted loan forgiveness application.
WBA Updates its PPP Calculator Tools, Master FAQ, and Other Related Information
Since the latest WBA webinar on PPP Loan Forgiveness which occurred on June 12, additional documents have been issued by Treasury and SBA, including two this week, that change some of the information shared during the webinar, and require updates to WBA’s Master PPP FAQ document. Much of these changes are incorporating into previous interim rules the changes brought about by the Paycheck Protection Program Flexibility Act. Below is a summary of some of these changes and other new information shared with WBA related to PPP.
Timing of Forgiveness Applications
SBA and Treasury issued a new document revising previously issued interim rules last night that also provided some clarity around when a borrower may apply for loan forgiveness. The rule states that a borrower may submit a loan forgiveness application at any time on or before the maturity date of the loan, including before the end of the covered period if the borrower has used all of the loan proceeds for which the borrower is requesting forgiveness. There is a caveat, though, that if the borrower applies for forgiveness before the end of the covered period and has reduced any employee’s salaries or wages in excess of 25 percent, the borrower must account for the excess salary reduction for the full 8-week or 24-week covered period, as required elsewhere in the rules. If the borrower does not apply for loan forgiveness within 10 months after the last day of the covered period, or if SBA determines that the loan is not eligible for forgiveness (in whole or in part), the PPP loan is no longer deferred and the borrower must begin paying principal and interest. If this occurs, the lender must notify the borrower of the date the first payment is due. WBA has added this FAQ along with other new ones and made changes to existing ones in its updated Master PPP FAQ document.
EZ Forgiveness Application and Calculator Tools
As previously reported in WBA e-pubs, Treasury and SBA did, after much pressure and lobbying from the industry, publish an EZ version of the forgiveness application in addition to updating the longer form forgiveness application. FIPCO has updated its calculator tools accordingly and both the EZ version and the regular version are now available for lenders and borrowers to use.
Group Health Care Coverage Definition
Since the beginning, “group health care coverage” has been included in the definition of payroll costs for purposes of both the application and forgiveness phases of the PPP program. None of the guidance issued in any form to date has defined what was meant by “group health care coverage” so WBA interpreted it in its literal meaning and indicated that it is not intended to include employer provided insurance coverage other than health insurance. In recent conversations with the Wisconsin SBA office, WBA learned that they are using the IRS definition of health insurance to interpret this phrase, which would then mean that in addition to health insurance, dental and vision insurance premiums would also be classified as eligible PPP employee compensation expenses. WBA has updated its FAQ accordingly.
Sole Proprietor/Self-Employed Calculation
The interim final rule issued on June 17 provided additional guidance relevant for sole proprietors and self-employed individuals. The rules were updated to provide a new formula for owner compensation replacement for a 24-week Covered Period. For a 24-week Covered Period, this amount is now the lesser of 2.5 months’ worth (2.5/12) of 2019 net profit, or $20,833. For an 8-week Covered Period, the formula remains the same at the lesser of 8-weeks’ worth (8/52) of 2019 net profit, or $15,385. WBA has updated its Sole Proprietor/Self Employed Guide to PPP for this and other recent changes.
Annual Salary Maximum
The program requires that for each individual employee, the total amount of cash compensation for forgiveness may not exceed an annual salary of $100,000, as prorated for the Covered Period. For an 8-week Covered Period, that total is $15,385. For a 24-week covered period, that total is $46,154. Given that the calculation of maximum PPP loan amount remains unchanged, it will rarely be the case that this 24-week maximum would be reached.
EIDL and PPP
WBA continues to get many questions about how the EIDL loan and EIDL grant and PPP work together. On June 19, the SBA released a Procedural Notice on June 19 to formalize previous guidance. This Notice provides that an EIDL loan may not be refinanced with a PPP loan when the PPP borrower received the EIDL loan before January 31, 2020 or after April 3, 2020. In addition, the EIDL loan is not required to be refinanced with a PPP loan when the PPP borrower received funds from an EIDL loan from January 31, 2020 through April 3, 2020, and the PPP borrower used the EIDL loan for purposes other than payroll costs. However, a PPP loan must be used to refinance the full amount of the EIDL loan (less any EIDL advance/grant amount) when the PPP borrower received funds from the EIDL loan from January 31, 2020 through April 3, 2020 and the PPP borrower used the EIDL loan funds to pay payroll costs.
With regard to the EIDL advance/grant, if it was used for the same purpose as the PPP loan, then it needs to be noted on the forgiveness application and will be deducted from forgiveness proceeds paid by SBA to lender pursuant to a completed, submitted loan forgiveness application. If it was not used for the same purpose, then WBA understands it does not need to be reported on the forgiveness application and will not be deducted from the forgiveness proceeds.