On Tuesday, the SBA limited the sum of owner compensation that may count toward forgiveness of a PPP loan; on the other hand, the agency confirmed that up to $46,154 may count toward forgiveness for any ordinary employee.
Congress amended the PPP rules two weeks ago, expanding the “covered period” (i.e., the time during which a borrower receives forgiveness credits for its loan) from 8 weeks to 24 weeks. But it left in place a limitation for an annualized cap of $100,000 in forgiveness per employee.
However, when considering this new rule, a borrower may only receive forgiveness credit for a 2.5 months of owner’s compensation, as measured by 2019 wages. This seems harsh, but it mostly closes a loophole, whereby a borrower could dodge the FTE reduction under one of the safe harbors and continue to pay owners as normal.
Speaking of safe harbors for the FTE reduction, SBA also added a new one for businesses that never got back up to speed by the end of their covered period, due to the government’s response to COVID-19. Specifically, it applies:
If you were unable to operate between February 15, 2020, and the end of the Covered Period at the same level of business activity as before February 15, 2020 due to compliance with requirements established or guidance issued between March 1, 2020 and December 31, 2020, by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19.
SBA also issued two new applications for forgiveness. One is labeled the “EZ” application, for borrowers who can check one of three boxes. The other application is for borrowers with more complex applications.