SBA Paycheck Protection Program FAQs

Did the SBA release a Forgiveness Application?
Yes, late Friday, May 15th, the SBA and Treasury released what is likely the first draft of the Forgiveness Application. Early indicators are that modifications are very likely, which makes it extremely challenging to answer specific questions about the document and program at this time. Rest assured, we are working diligently to fully understand the document and actively monitoring authoritative sources for guidance. Please mark you calendar for the next webinar on June 4th at 10am and contact your Business Banker for the Zoom login credentials. 
Check back here often; we will continue to update this document as details become official. If you have a question, please submit it to SBAInquiry@BlackhawkBank.com If we have not answered your question here, it is be cause guidance does not yet exist on the topic. 
 

PAYROLL QUESTIONS

1. CAN I INCLUDE THE EMPLOYER PORTION OF FEDERAL EMPLOYMENT TAXES, LIKE FICA, IN MY FORGIVENESS AMOUNT?
A: No, Federal taxes paid by the employer are not eligible for Forgiveness under the PPP loan. Gross employee wages are allowed and state or local employer taxes on payroll are allowed, but not employer paid Federal taxes. 
2. WHAT DO YOU MEAN WHEN YOU SAY 75% OF THE POTENTIALLY ELIGIBLE FORGIVENESS AMOUNT MUST BE FOR PAYROLL?
A: A quick example - let's say that your company's eligible payroll expenses for the 8-week covered period is $10,000 and when the potentially eligible non-payroll expenses, like interest, utilities and rent, add up they total $4,000. In this example, a company would not potentially be eligible for the full $14,000 in Forgiveness because the $4,000 is more than 25% of the $14,000. A company would be limited in that example to $13,333. And, therefore, only $3,333 of the $4,000 in other expenses could be forgiven. A minimum of 75% of the potential Forgiveness amount must be used for payroll related expenditures with the maximum limited to the entire loan balance, plus interest. 
3. WHEN CALCULATING WHAT PAYROLL COSTS CAN BE POTENTIALLY ELIGIBLE FOR FORGIVENESS, CAN I INCLUDE PREMIUM PAY (ex- hazard pay) OR BONUSES PAID IN THAT 8-WEEK COVERED PERIOD?
A: There is nothing in the current guidance that would indicate a temporary increase in hourly or salary would be excluded as long as it would meet the definition of "incurred and paid" which will hopefully be clarified soon. While we cannot say for certain until further guidance is issued, bonuses may become problematic because of the "incurred and paid" definition. It might be difficult to concluded that a regular quarterly bonus would be fully "incurred" during that 8-week window. However, further guidance on this issue will be necessary before a final conclusion is made. 
4. DO DEFINED BENEFIT PLAN PAYMENTS QUALIFY?
A: Yes, payments made for retirement benefits are eligible for potential Forgiveness. However, the "incurred and paid" definition will need to be clarified in order to understand whether the full premium would be eligible. 
5. I AM A SELF-EMPLOYED INDIVIDUAL WITH NO EMPLOYEES OR OTHER ELIGIBLE EXPENSES. HOW WILL YOU CALCULATE MY FORGIVENESS?
A: Self-employed individuals with no employees or other eligible expenses such as deductible interest, utilities, or rent will calculate forgiveness by simply determining the 2019 net income as noted on your 2019 IRS Form 1040 Schedule C, line 31. Divide this amount (capped at $100,000) by 52 weeks and then multiple that number by 8 weeks of the covered period. 
6. HOW SHOULD I TREAT PEOPLE WORKING FOR MY COMPANY THAT ARE INDEPENDENT CONTRACTORS AND WHOSE PAY IS DOCUMENTED VIA A 1099, RATHER THAN A W-2?
A: Independent contractors are not eligible to be counted on payroll for your company and would also not be considered in the Forgiveness calculations. Independent contractors were eligible to apply for PPP loans on their own, but not on your application. 
7. WE HAVE LAID PEOPLE OFF BECAUSE WE WERE REQUIRED TO CLOSE OUR BUSINESS. WILL THAT IMPACT HOW MUCH OF THIS LOAN CAN BE FORGIVEN?
A: Yes! While the specific calculation on the impact will require further clarification, the situation described will impact the amount that can be forgiven. 
8. WHAT HAPPENS IF MY ENTIRE LOAN AMOUNT CANNOT BE FORGIVEN AT THE END OF THIS "COVERED PERIOD"? WHAT HAPPENS TO THE REMAINDER OF THIS LOAN?
A: If the total amount of your initial loan cannot be forgiven based on the guidance and rules of the Forgiveness calculation, the remainder of your loan will need to be repaid. Those remaining amounts will have the first 6 months of payments deferred (retroactive to date of initial funding) and then there would be 18 months of payments due to pay the entire balance off within a total of 24 months from origination. The interest rate is 1% and will accrue during the entire term of the loan. 
9. NEW 5/4: WILL THE FORGIVENESS AMOUNT BE REDUCED IF WE LAID OFF EMPLOYEES, OFFERED TO REHIRE THE SAME EMPLOYEES, BUT THE EMPLOYEES DECLINED THE OFFER ?
A: No. As an exercise of the Administrator’s and the Secretary’s authority under Section 1106(d)(6) of the CARES Act to prescribe regulations granting de minimis exemptions from the Act’s limits on loan forgiveness, SBA and Treasury intend to issue an interim final rule excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and same number of hours) from the CARES Act’s loan forgiveness reduction calculation. The interim final rule will specify that, to qualify for this exception, the borrower must have made a good faith, written offer of rehire, and the employee’s rejection of that offer must be documented by the borrower. Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation. 

MORTGAGE or OTHER INTEREST & LEASE QUESTIONS

1. WHEN LOOKING AT MORTGAGE INTEREST, DO AGREEMENT OR CONTRACT FOR DEED TRANSACTIONS QUALIFY?
A: There would be nothing specific about an agreement or contract for deed situation that would exclude it from being acceptable. In these situations, the "lender" is simply the seller rather than a traditional bank. All of the same documentation requirements would still be present, however. The contract would have to be dated prior to 2/15/2020, it would include just the interest paid, not principal, and proof of payment would still be required for the 8-week "covered period". 
2. Updated 4/30: WOULD THE INTEREST I PAID ON MY LINE OF CREDIT QUALIFY?
A: This is still unclear in the current guidance. Interest on non-mortgage debt was specifically outlined as an acceptable use of PPP loan proceeds, but was conspicuously absent in the language discussing Forgiveness in the text of the CARES Act. Additional guidance and clarity will need to be provided by the SBA or Treasury. 
 

• RENT QUESTIONS

1. CAN I PREPAY MY RENT DURING THIS 8-WEEK PERIOD TO INCLUDE IT IN THE FORGIVENESS CALCULATION?
A: We believe the "incurred and paid" element would impact this. While the specific definition still needs to be provided, it would appear that the intent of this program would not allow you to "prepay" any expenses and have those expenses qualify for Forgiveness. 
 

• UTILITIES QUESTIONS

1. WHAT UTILITIES WILL BE CONSIDERED AS A QUALIFIED EXPENSE UNDER THIS PROGRAM?
A: There has been no specific guidance on what does or does not qualify. Most that will likely qualify are very logical, such as gas, electric, water, telephone, garbage, and internet. However, there may be other expenses that will qualify as well. Please be sure to track and document all that you believe may qualify so that you are prepared either way. 

• GENERAL QUESTIONS

1. WHAT DO YOU RECOMMEND THAT I START DOING IMMEDIATELY?
A: We would recommend tracking and documenting the following:
  • Track and document payroll hours and expenses at the per-employee level
    • For the actual 8 week period beginning on the date your loan was funded
    • Payroll hours for the period of 2/15/2019 thru 6/30/2019
    • Payroll hours for the period of 1/1/2020 thru 2/29/2020
    • Track average payroll at the employee level from 1/1/2020 thru 3/31/2020
    • Document FTEE on 6/30/2020
    • You will likely need to provide this documentation in your Forgiveness application
  • Organize copies of all lease agreements and proof of payment during the 8 week period
  • Organize copies of all utility bills and proof of payments during the 8 week period
  • Organize copies of all mortgage and other loan Notes and proof of payments
    during the 8 week period (non-Blackhawk Bank)
  • For self-employed individuals, we will need a copy of your 2019 IRS Form 1040, Schedule C, from the tax return
  • Additionally, if any lease, utility, or other debt is applicable, copies will also be required
2. DO I NEED TO KEEP A SEPARATE ACCOUNT FROM WHICH TO PAY ALL OF THESE EXPENSES?
A: You do not need to maintain a specific account to track these expenses. While it may be easier for you to track in that way, it is completely up to you how you manage to track eligible expenses. When preparing for the Forgiveness process at the end of 8-week "covered period" you will need to provide proof that these qualified expenses have been "incurred and paid" during this period. 
3. WHAT DOES THE TERM "INCURRED AND PAID" ACTUALLY MEAN?
A: We anticipate having more guidance from the SBA on this topic to clarify what is meant by this. In the absence of the definition, we recommend that you begin to collect all potentially qualified expense documentation and be able to document over what period the expense was incurred and when you actually paid it. For instance, a regular payroll that covers a 2-week period that was paid a week after you loan was funded may have to be excluded. Right now, however, we can only recommend that you maintain or have access to all of these details so that when guidance is provided by the SBA, you can document appropriately. 
4. WILL PROOF OF PAYMENT BE ON A CASH OR ACCRUAL BASIS?
A: While this topic has not specifically been addressed, all indications are that you will need to show proof that the expense has been paid and not simply accrued for. 
5. I HAVE HEARD THAT THE FORGIVABLE PORTION OF THIS LOAN WILL NOT BE TAXABLE LIKE OTHER LOAN FORGIVENESS IS. IS THAT TRUE?
A: While the program has made clear that loan Forgiveness under this program will not be subject to typical loan Forgiveness tax treatment, there are other questions that have not yet been made clear by the individual states or by the Internal Revenue Service. It would be our recommendation that you consult with a tax professional when preparing for 2020 tax planning or preparation. 
6. I RECEIVED $10,000 FROM THE SBA'S ECONOMIC INJURY DISASTER LOAN (EIDL) PROGRAM AFTER RECEIVING MY PPP LOAN. DO I HAVE TO REPAY THAT OR NET IT OUT OF MY FORGIVENESS CALCULATIONS?
A: It would appear that you do not need to pay this $10,000 back based upon your question. It all depends on when you received your EIDL funds, whether you accept additional EIDL loan proceeds, and what you used those proceeds for. If you received the $10,000 EIDL funds BEFORE April 3, 2020, AND used those funds for the same purposes covered under the PPP loan, then yes, the EIDL funds would be repayable. However, if you received them after April 3, 2020, and do not accept additional loan funds from the EIDL program, those funds become a grant that does not need to be repaid. If you accept other funds from the EIDL fund and sign a loan agreement with the SBA, this initial $10,000 will be netted from those additional loan funds and, therefore, does need to be repaid with the remainder of that loan. 
7. SHOULD I BE CONSIDERING RETURNING THE FUNDS IF MY BUSINESS HAS BEEN DOING OKAY? AM I GOING TO BE AUDITED?
***UPDATE 5/13: THIS ADVICE IS NOW APPLICABLE FOR BORROWERS WHO’S LOAN AMOUNTS EXCEED $2 MILLION – SEE QUESTION #9 BELOW FOR GREATER CLARITY ON THE ‘SAFE HARBOR’ PROVISION***
A. You are absolutely right to ask about this issue. On April 23rd, the SBA and the Treasury issued guidance that suggested the large, publicly traded companies that had substantial resources and access to capital markets could likely not make the claim that economic uncertainty made it imperative they receive funds under this program. Then, on April 28th, the SBA expanded that same guidance to private companies with adequate sources of liquidity to support their ongoing operations.
At the heart of this issue is two sentences within the guidance, which read: 
“All borrowers should review carefully the required certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business”.

This issue has become a political hot button and therefore we cannot tell you what the specific threshold will be. Each company will need to determine this based upon their own set of circumstances. We believe every business that accepted PPP funds needs to evaluate this statement and remain assured that they can, in good faith, still attest to it. This program was designed around you retaining employees on your payroll during a period of great uncertainty and the reality or reasonable potential that your revenues may have been reduced or expenses increased as a result.

The Treasury has stated that recipients of all loans over $2 million will have their loan request audited and that other, random audits will be conducted. It is reasonable to assume that they will compare 2019 net income to 2020 net income and look for “red flags”. They may also look at specific NAICS codes for anomalies.

If you believe that your business has been or will be negatively impacted by the COVID-19 crisis, and the PPP funding helped you avoid reducing payroll, the program achieved its objective. There has been no guidance on the level of impact or “pain” incurred to make your business eligible. However, we do believe that you should fully prepare yourself in the event an audit of your request does come. We would highly recommend that you document how your business has been impacted, now while the information is fresh. Whether that was a hit to revenue, impacts on staffing, supply chain disruptions, etc., document this all now.

We, too, are frustrated by the political elements to this “after the fact” environment. The intent was to keep folks on payroll not to provide funding to only troubled companies.

8. NEW 5/6: IS THE SBA EXTENDING THE SAFE HARBOR REPAYMENT DEADLINE?

A. Yes, the SBA announced it is extending by one week the repayment date for the Paycheck Protection Program Safe Harbor. In an update to its PPP frequently asked questions, the Treasury Department cited guidance reminding borrowers to carefully review the required certification on the Borrower Application Form that current economic uncertainty makes their loan request necessary to support their ongoing operations.

SBA guidance and regulations provide that any borrowers that applied for a PPP loan prior to April 24, 2020 and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith. In the latest update to its FAQs, Treasury said the SBA is extending the repayment date for this Safe Harbor to May 14, 2020. According to Treasury, SBA will implement the extension through a revision to its interim final rule providing the Safe Harbor, and it intends to provide additional guidance before May 14, 2020.

9. NEW 5/13: HOW WILL THE SBA REVIEW BORROWERS' GOOD-FAITH CERTIFICATION CONCERNING THE NECESSITY OF THEIR REQUEST?

A. When submitting a PPP application, all borrowers were required to certify in good faith that "[c]urrent economic uncertainty makes this loan necessary to support the ongoing operations of the Applicant." The agency today, in consultation with the Department of Treasury, has determined that the following safe harbor will apply to SBA's review of PPP loans with respect to this issue:

 

The guidance comes shortly before a May 14 deadline for PPP borrowers who did have access to other sources of capital to return funds.

 

Rationale: SBA has determined that this safe harbor is appropriate because borrowers with loans below this threshold are generally less likely to have had access to adequate sources of liquidity in the current economic environment than borrowers that obtained larger loans. This safe harbor will also promote economic certainty as PPP borrowers with more limited resources endeavor to retain and rehire employees. In addition, given the large volume of PPP loans, this approach will enable SBA to conserve its finite audit resources and focus its reviews on larger loans, where the compliance effort may yield higher returns.

10. DOES THE SAFE HARBOR CLARIFICATION CHANGE ANYTHING FOR BORROWERS WITH LOANS GREATER THAN $2 MILLION?
A. The SBA recognizes that borrowers with loans greater than $2 million that do not satisfy this safe harbor may still have an adequate basis for making the required good-faith certification, based on their individual circumstances in light of the language of the certification and SBA guidance.
 
However, SBA has previously stated that all PPP loans in excess of $2 million, and other PPP loans as appropriate, will be subject to review by SBA for compliance with program requirements set forth in the PPP Interim Final Rules and in the Borrower Application Form. SBA added that borrowers who repay their loans after receiving notification from the SBA will not be subject to administrative enforcement or referrals to other agencies. Additionally, SBA's determination regarding the necessity of the loan request will not affect the SBA loan guarantee.
 
If SBA determines in the course of its review that a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request, SBA will seek repayment of the outstanding PPP loan balance and will inform the lender that the borrower is not eligible for loan forgiveness. 

Next Webinar:
June 4th at 10am 

To receive the Zoom login information, please contact your Business Banker

NEW questions as of 5/13:

  • How will the SBA review borrowers' good-faith certification concerning the necessity of their request? (#9, General section)
  • Does the safe harbor clarification change anything for borrowers with loans greater than $2 million? (#10, General section)

UPDATE question as of 5/13:

  • Should I be considering returning the funds if my business has been doing okay? Am I going to be audited? (#7, General section)
    UPDATE 5/13: THIS ADVICE IS NOW APPLICABLE FOR BORROWERS WHO’S LOAN AMOUNTS EXCEED $2 MILLION – SEE QUESTION #9 BELOW FOR GREATER CLARITY ON THE ‘SAFE HARBOR’ PROVISION