The U.S. Small Business Administration (SBA) released an application form and instructions for Paycheck Protection Program (PPP) loan forgiveness. The form provides detailed instructions for borrowers and the calculation of PPP loan forgiveness. Under the procedures, a borrower must file SBA Form 3508, Paycheck Protection Program Loan Forgiveness Application. The application has four components: (1) the PPP Loan Forgiveness Calculation Form; (2) PPP Schedule A; (3) the PPP Schedule A Worksheet; and (4) the (optional) PPP Borrower Demographic Information Form.  Borrowers are required to submit items (1) and (2) along with supporting documents to their lender. Here are some noteworthy components of the SBA Form 3508.

Loans in Excess of $2 Million

The SBA Form 3508 includes a box that needs to be checked by borrowers who, together with its affiliates, received PPP loans with an original principal amount in excess of $2 million. This provision is expected to flag PPP loans that the Treasury Department has already warned it will audit. However, the form’s instructions specifically limit the obligation to check this flag-raising box to loans aggregated with affiliates “to the extent required under SBA’s interim final rule on affiliates (85 CFR 20817 (April 15, 2020))”. The borrowers still have to interpret the meaning of those affiliation rules to determine whether to check the box.

Summary of Costs Eligible for Forgiveness

The SBA Form 3508 also provides two broad categories of costs that are subject to forgiveness: eligible payroll costs and eligible nonpayroll costs (covered mortgage obligations, covered rent obligations, and covered utility obligations).

Borrowers are generally eligible for forgiveness for payroll costs paid and payroll costs incurred during the eight-week (56-day) covered period (or alternative payroll covered period). Payroll costs are considered paid on the day that paychecks are distributed or the borrower originates ACH credit transactions. Payroll costs are considered incurred on the day that the employee’s pay is earned. Payroll costs incurred but not paid during the borrower’s last pay period are eligible for forgiveness if paid on or before the next regular payroll date. In short, a borrower does not need to adjust its payroll schedule in order to qualify for payroll expense forgiveness. As previously discussed, for each individual employee, the total amount of cash compensation eligible for forgiveness may not exceed an annual salary of $100,000, as prorated for the covered period.

Nonpayroll costs eligible for forgiveness consist of mortgage, rent, and utility payments for obligations that incurred before February 15, 2020. An eligible nonpayroll cost must be 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. Eligible nonpayroll costs cannot exceed 25% of the total forgiveness amount.

Alternative Payroll Covered Period

SBA allows, for administrative convenience, borrowers with a biweekly (or more frequent) payroll schedule to elect calculate eligible payroll costs using the eight-week (56-day) period that begins on the first day of their first pay period after their PPP loan disbursement date. However, borrowers who elect to use the alternative payroll covered period must apply the general covered period wherever there is a reference to “the Covered Period only”.

Example: Company A received PPP loan on April 20, and its first day of pay period following its PPP loan proceeds is on April 26. General covered period is April 20 through June 14. Alternative covered period is April 26 through June 20.

Documents that Each Borrower Must Submit with its PPP Loan Forgiveness Application

Documentation verifying the eligible cash compensation and non-cash benefit payments:

• Bank account statements or third-party payroll service provider reports,
• Tax forms for the periods such as:
  • Federal payroll tax filings (typically, Form 941), and
  • State payroll tax filings
• Payment receipts or account statements documenting the amount of any employer contributions to employee health insurance and retirement plans that the borrower included in the forgiveness amount

Documentation verifying existence of the obligations/services prior to February 15, 2020 and eligible payments from the covering period:

• Business mortgage interest payments: Copy of lender amortization schedule and receipts or cancelled checks verifying eligible payments from the Covered Period; or lender account statements from February 2020 and the months of the Covered Period through one month after the end of the Covered Period verifying interest amounts and eligible payments.
• Business rent or lease payments: Copy of current lease agreement and receipts or cancelled checks verifying eligible payments from the Covered Period; or lessor account statements from February 2020 and from the Covered Period through one month after the end of the Covered Period verifying eligible payments.
• Business utility payments: Copy of invoices from February 2020 and those paid during the Covered Period and receipts, cancelled checks, or account statements verifying those eligible payments.

The application also includes documents that are not required to be submitted but each borrower must contain.

Also, as president Trump is currently talking to restaurant industry leaders and it seems like there is a bipartisan consent to extend the PPP loan disbursement period from 8 up to 12 weeks, we should keep an eye out for any update.

For details, please see Paycheck Protection Program Loan Forgiveness Application

급여보호프로그램 대출 상환 감면

급여보호프로그램 (Paycheck Protection Program 혹은 PPP) 대출을 신청한 업체들이 대출의 상환 감면을 받기 위해서충족해야 하는 몇가지 조건들이 있다. 주 된 3가지 내용에 대해서 설명하고자 한다.

1. 75/25 테스트

우선 대출금은 프로그램에서 지정한 비용으로 지출 되어야 한다. 대출을 받은 이후로 8주 안에 75% 이상의 대출금이 급여비로 지출이 되어야 하며, 급여가 아닌 비용에 대해서는 대출금의 25%까지 사용 될 수 있다. 급여성 비용과 비 급여성 비용에 대해서는 각각 따로 계산이 되어야 하며, 급여성 비용이 대출금의 75%가 되지 않는 경우에는 상환 감면을 받지 못하게 된다.

급여성 비용에는 세전급여, 팁, 휴가급여, 병가 급여, 퇴직급여 및 주 급여세가 포함된다. 연봉이 $100,000 이상인 직원의 경우에는 관련 비용이 $15,385 ($100,000/52 x 8주)까지만 인정된다.

감면이 허용되는 비 급여성 비용에는 2020년 2월 15일 이전에 존재했던 리스, 모기지 및 계약에 근거한 유틸리티 비용등이 있다.

예시 1:

회사X는 $100,000의 PPP Loan을 받았다. 8주 동안 이 회사는 $60,000의 급여성 비용, $10,000의 감면이 허용되는 비 급여성 비용을 발생하였고 나머지 $30,000은 회사의 주주에게 배당하였다. 이 경우 상환감면 금액은 $15,000이 감면 된다 ($100,000의 75%인 $75,000과 실제 지급된 급여성 비용 $60,000의 차액). 비 급여성 비용 $10,000은 감면이 허용 된다. 따라서, 총 상환감면 금액은 $70,000이 된다 ($60,000의 급여성 비용과 $10,000의 감면이 허용되는 비 급여성 비용의 합).

2. 급여의 감소 테스트

대출 후 8주 동안 지급되는 급여가 대출금의 신청을 위해서 사용 되었던 기본 급여보다25% 이상 감소된 경우 이에 따라 대출금의 상환 감면 금액도 감소하게 된다. 대출금 산정시에 포함되었던 직원의 급여가 2020년 6월 30일까지 모두 정상화 되게 된다면, 이에 대한 상환 감면 금액의 제한은 해당사항이 없다. 단,  해고당했거나, 퇴사했거나, 은퇴를 하였거나 혹은 다른 이유로 일을 그만두게 된 기존의 직원이 아닌 새로운 직원을 고용 하는 것에 대해서도 위와 같은 예외 조항이 적용되는지는 아직 불분명하다.

예시2:

회사 X에는 두 직원이 있다. 직원A는 $10,000의 급여가 책정되어 있고 직원B에게는 $15,000의 급여가 책정되어 있다. 대출을 받은 후 회사 X는 직원A에게 $10,000의 급여를 지불했으나, 직원B에 대한 고용을 유지할 수 없었다. 직원A의 경우 75% 이상의 급여가 지불되었기 때문에 이에 대해서는 상환 감면 금액에 영향이 없다. 다만, 직원 B에 대해서는 $15,000의 75%인 $11,250만큼 상환 감면 금액이 감소되게 된다.

3. 정규직 감소 테스트

정직원이란 일주일에 30시간 이상을 근무하는 직원들을 칭한다. 일주일에 30시간 미만을 일하는 파트타임의 경우 각자 주별로 일한 시간에 따라 합쳐서 테스트 할 수 있다. 대출금 산정시에 포함되었던 정직원에서 대출 후 8주간 급여가 지불된 정직원이 감소된 만큼 대출 상환 감면 금액은 감소하게 된다. 이 또한 대출금 산정시에 포함되었던 정직원이  2020년 6월 30일까지 모두 정상화 되게 된다면, 이에 대한 상환 감면 금액의 제한은 해당사항이 없다. 이 제한은 위의 2번의 제한이 적용 된 급여 비용에 적용이 된다.

예시 3:

위의 예시 1과 2와 다른 사항이 같다고 가정했을 때, 기준이 되는 정직원의 숫자는 100이였고 대출후 8주 동안의 정직원의 숫자는 80이었다. 위와 같이 급여성 비용은 $60,000 감면이 되고 비 급여성 비용은 $10,000감면이 된다. 또한 급여 감소에 대한 제한은 $11,250이다. 정직원 감소 비율은 80%이기 떄문에 (80명/100명) 상환감면 금액은 $11,750 제한되게 된다 ($60,000 + $10,000 - $11,250) x (1-80%) = $1,1750). 즉, $100,000의 대출 금액 중 실제로 상환 감면 되는 금액은 $47,000이 된다 (급여성 비용 $600,000 + 감면이 허용되는 비 급여성 비용 $10,000 – 급여 감소에 대한 제한 $11,250 – 정직원 감소에 대한 제한 $11,750).

By now, many businesses received Paycheck Protection (“PPP”) loans. Here are some hurdles businesses must hop over to maximize the amount of PPP loan forgiveness.  Mainly, there are 3 tests that you must pay attention to.

Test 1:   75/25 Allocation

To be eligible for loan forgiveness, borrowed money must be used for designated expenses.  Participants are eligible for loan forgiveness for the amount spent on authorized expenses over the 8-weeks period of time after receiving the loan.  The SBA rules provides that at least 75% of loan funding must be spend on qualifying payroll cost, and not more than 25% of the loan forgiveness amount may be attributable to qualifying non-payroll costs.  Qualify payroll cost and non-payroll costs are two separate buckets that must be tested independently.

To the extent the 75% of the loan amount exceeds the qualifying payroll expenditure made during the 8-weeks, the forgiveness amount will be decreased.

Up to 25% of the loan amount spent on the qualifying non-payroll expenditure during the 8-weeks will be forgiven.

Qualifying payroll costs include gross salary, wages, tips, health care expenses, vacation, sick leave, retirement fund contributions, and state employer payroll taxes.  Gross salaries of employees, earning more than $100,000 in annualized salaries, should be capped at $15,385 ($100,000/52 x 8 weeks).

Qualifying non-payroll costs include rent payment on pre-2/15/2020 lease agreement, mortgage interest on pre-2/15/2020 mortgage loan, and utility payments under pre 2/15, 2020 service contracts.

Example 1:

Company X receives a PPP loan in the amount of $100,000.  During the 8-week covered period, Company X spends $60,000 on qualifying payroll expenses, $10,000 on qualifying non-payroll expenses and distributed the remaining $30,000 shareholders.  Debt discharge is first reduced by $15,000 [75% of $100,000 loan amount less $60,000 qualifying payroll].  The entire $10,000 qualify non-payroll expenses would be forgiven since the amount is within the 25% of the loan amount.  Thus, the total forgiveness is $70,000 [$60,000 qualifying payroll cost plus $10,000 qualifying non-payroll cost].

Test 2:  The Salary or Wage Reduction Test

The amount of loan forgiveness must be reduced if an employee’s salary or wage during the covered 8-week was reduced in excess of 25% of the base period wage used for loan application.  However, if the included employees’ wages are reinstated fully by June 30, 2020, then the salary or wage reduction is waived.  A notable open question in this area is the application of these provision in circumstances where an employee is terminated, quits, retires, is terminated, laid off or furloughed during the 8 week period and the borrow hires a new employee at the same total salary and wages on or before June 30, 2020 and whether that action eliminates the potential forgiveness reduction that would otherwise have occurred.

Example 2:

Company X has two employees, Jack and Smith.  The base period compensation was $10,000 for Jack and $15,000 for Smith.  Provided that Company X paid $10,000 to Jack during the covered 8-week period but was not able to rehire Smith.  First, in connection with Jack, the loan forgiveness will be reduced by $0 [Jack’s compensation in the amount of $10,000 during the 8-weeks exceeds 75% of the based period compensation of $10,000].  Second, in connection with Smith, the loan forgiveness will be reduced by $11,250 [$15,000 base period compensation x 75% less $0 compensation during the 8-weeks = $11,250]. 

Test 3:  The Full-Time Equivalent (“FTE”) Workforce Reduction Test

FTEs are employees working at least 30 hours per week.  Part-time employees, working less than 30 hours per week, can be combined based on hours they worked each week.  The amount of loan forgiveness must be reduced by multiplying the sum of payroll costs by the reduction in FTE from the covered 8-week to the based period FTE.  However, if the workforce is reinstated by June 30, 2020, no reduction is applied.  Note that the workforce reduction is applied to payroll costs after the salary and wage reduction.

Example 3:

The facts are the same as Examples 1 and 2 above, and Company X’s FTE for the base period is 100 and was decreased to 80 during the covered 8-week.  As shown above, the payroll cost subject to discharge is $60,000 and the non-payroll cost subject to discharge is $10,000.  The salary and wage reduction is $11,250.  The work force reduction is 80% [80 /100].  Then the workforce reduction amount is $11,750 [($60,000 + $10,000 - $11,250) x (1-80%) =$11,750].  Thus, out of the $100,000 PPP loan amount, Company X will be forgiven $47,000 [$60,000 qualifying payroll cost + $10,000 qualifying non-payroll cost - $11,250 salary and wage reduction – $11,750 workforce reduction].

Lastly, the maximum forgiveness amount for a PPP loan will be reduced dollar for dollar by the amount of any advance received under Economic Injury Disaster Loan program.

As some of us are waiting to see if additional funding will be made to the Paycheck Protection Program (“PPP”), businesses should seek for additional sources of financing to survive through the economic crisis resulting from the COVID-19 Pandemic.  On April 9, 2020, the Federal Reserves has unveiled details of a new program to loan money to small to midsize businesses – the Main Street Lending Program.

Unlike PPP loans, which may be forgiven if the borrowers meet certain requirements, this program is a traditional government backed loan with a low interest rate.  Businesses that have taken advantage of the PPP may also take out the Main Street loans.  Here are some key terms and eligibility of the program:

• The program is available to any businesses with fewer than 10,000 employees or with revenue of less than $2.5 billion.
• To be eligible, businesses need to have at least $250,000 in EBITDA with no debt, or a higher EBITDA threshold will apply to businesses with debt.
• The borrower must maintain payroll and retain workers through the pandemic.
• The borrower must meet all compensation, stock repurchase and dividend restrictions.
• The loan amount is between $1 million to $10 million.
• The repayment term for this program is four years with a variable interest rates, arranging from 2.5% to 4%.
• Amortization of principal and interest deferred for one year.
• Prepayment permitted without penalty.

If you are interested in participating in this program, contact your local lender.  Eligible lenders include U.S.-insured depository intuitions, U.S. bank holding companies and U.S. savings and loan holding companies.

Additional detail about the program can be found in the link below: https://www.federalreserve.gov/monetarypolicy/mainstreetlending.htm