[Education] Corrected PPP Loan Forgiveness Application Issued By SBA June 16, 2020

[Inside Charity]

Nonprofit Execs & Board Members, Your CORRECTED PPP Loan Forgiveness Application Is Ready for Download - June 16, 2020

PLUS THE NEWLY ISSUED PPP LOAN FORGIVENESS APPLICATION FORM 3508EZ

(Because of your important work with Charitable Organizations)

Dear Nonprofit Execs & Colleagues In Service,

On June 5th, President Trump signed the Paycheck Protection Program Flexibility Act of 2020, which made significant changes to the PPP program. The Bill he signed was the exact law passed as H.R. 7010 by the House of Representatives.

Since then, the Treasury Department issued regulations on June 11th, which included four important pronouncements, as discussed below.

1. The 60% Rule Is Not a Cliff. The Treasury Department does not consider the 60% requirement, which replaced the 75% requirement as to amounts spent on “payroll costs” to be a “cliff.” If a PPP borrower cannot spend 60% or more of the loan proceeds during the 8- or 24-week testing period on payroll, state and local payroll taxes, group health insurance and retirement plan contributions, then there will nevertheless be PPP loan forgiveness based upon whatever is spent on the above “payroll costs,” plus up to 66% of the amount spent on the above items, to the extent of permissible rent, interest and utility expenses. Here's why:

A. It would be “incongruous” to interpret the Flexibility Act’s 60% requirement as a threshold for receiving any loan forgiveness, because in some cases it would directly conflict with the flexibility provided by the new safe harbor.

B. The 60% requirement was enacted against the backdrop of the SBA’s existing rules governing the PPP, which Congress was aware of, and which provided for proportional reduction, and not a cliff, for borrowers that used less than 75% of their loan amount for “payroll costs.”

C. The non-cliff interpretation is the most consistent with Congress’s purpose, which was “to increase the flexibility provided to borrowers for PPP loan forgiveness.”

An example from the June 11th regulation that illustrates how this rule works is as follows:

For example, if a borrower receives a $100,000 PPP loan, and during the covered period the borrower spends $54,000 (or 54 percent) of its loan on payroll costs, then because the borrower used less than 60 percent of its loan on payroll costs, the maximum amount of loan forgiveness the borrower may receive is $90,000 (with $54,000 in payroll costs constituting 60 percent of the forgiveness amount and $36,000 in nonpayroll costs constituting 40 percent of the forgiveness amount).

2. 24 Months Will Seem Like a Long Ride in the Haunted Mansion - Post June 5 Borrowers Can Only Use the 24-Week Test. Post-June 5 PPP borrowers will only be able to use the 24-week testing period, while borrowers who received their loans before June 5th can elect to use either an 8-week expenditure period or a 24-week expenditure period. Post-June 5th borrowers are required to use the 24-week period, for no apparent reason. This was confirmed by the revised Borrower Application released on June 12th which now says, “The Applicant will provide to the Lender documentation verifying the number of full-time equivalent employees on the Applicant’s payroll as well as the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the 24-week period following this loan.”

The 24-week period is advantageous, if the borrower would not be able to spend sufficient amounts and satisfy the 60% test within an 8-week period.

The 8-week test is much more advantageous for borrowers who are able to spend the appropriate amounts during the 8-weeks, and then apply for forgiveness and have the loan over and done with, and off of their balance sheets, in order to be able to borrow conventionally going forward.

The 8-week testing period is also better for borrowers who have had significant reductions in their workforce, and are required to reduce forgiveness pro-rata to the reduction in total working hours, as compared to pre-virus working hours for the business. It is easier to keep the doors open and the staffing up for 8 weeks as opposed to 24 weeks, although the June 5th legislation, regulations and Frequently Asked Questions (“FAQ’s”) have several exceptions for situations beyond the control of borrowers.

It is nevertheless very surprising that pre-June 5th, and post-June 5th, borrowers will be treated so differently, and perhaps in error.

3. New 5 Year Maturity Date Only Applies to Post June 5th Loans. Loans made before June 5, 2020 have a 2-year maturity...VISIT INSIDE CHARITY TO READ ENTIRE ARTICLE

Inside Charity is pleased to report that over 200,000 executives, staff, board members, ministry leaders and volunteers rely on Inside Charity for their nonprofit news. We're grateful to everyone who has participated and want to encourage as many as people as possible to continue to share their experiences. Your written comments and contributions have helped your colleagues navigate this process.

We are all in the throes of the global pandemic. Charities everywhere are feeling the effects of isolation measures, business shutdowns, travel bans, and markets crashing. InsideCharity is here to make sure receive the information you require to navigate these unprecedented times. We're in direct contact with the financial experts at the SBA to provide you real-time updates you need to navigate CARE Act funding.

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Warmly,
James P. LaRose, CNE, CDE, CNC
Senior Editor

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