Are Paycheck Protection Loans Forgiven?
The SBA clarified in the April 15th, 2020 Final Interim Rule that paycheck protection loans may be forgiven up to the full principal amount of the loan and accrued interest. Borrowers would not be responsible for any loan payment so long as they meet the forgivability requirements under law. There are a number of conditions that must be met. The total forgiveness amount of a paycheck protection loan will depend on the following amounts incurred over the eight-week periods following the date of the loan:
1. The total amount of payroll costs.
2. Payments of interest on mortgage obligations incurred before February 15th, 2020.
3. Rent payment on leases dated before February 15th, 2020
Utility payments under service agreements dated before February 15th, 2020.
Bear in mind, the interim final rule gives a bit of insight into how the administrator is to view these loans when considering forgivability. Non-payroll uses of these funds are intended to be limited to expenses that align with the core purpose of the statute itself. That’s why 75% of the loan must be used for payroll costs in order to qualify for forgiveness. The SBA emphasizes that “although PPP loan proceeds may be used for the purposes listed above and for other allowable uses described in section 7(a) of the Small Business Act (15 U.S.C. 636(a)), the Administrator believes that finite appropriations and the structure of the Act warrant a requirement that borrowers use a substantial portion of the loan proceeds for payroll costs, consistent with Congress’ overarching goal of keeping workers paid and employed.” It is important to use the proceeds of the loan consistently with this explicit intent.
EIDL and PPP Loans and Forgiveness
It is also important to note that proceeds from the paycheck protection loan must be used to refinance a SBA EIDL loan that was made between January 31st, 2020 and April 3rd, 2020 to the extent the proceeds of the EIDL loan were used for payroll.
The borrower must document the proceeds used for payroll costs in order to determine the amount of forgiveness.
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