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PPP Developments: SBA Clarifies Loan Forgiveness Surrounding Rehiring Employees

5/5/20 – Emir Hodzic

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The Small Business Administration (SBA) provided an update on the second round of funding, as of May 1, 2020. The results can be found here. The rate of funding has certainly slowed compared to the first round, and the average loan size is reported to be just $79,000, which is significantly lower than the first round average of $206,000. This indicates the focus of the second round is meeting its intended target. Community and smaller banks with assets under $10 billion accounted for nearly $56 billion in approved dollars.

The SBA also released additional FAQ’s on May 3, 2020. In particular, Question #40 provides some relief to businesses who have been concerned with their ability to rehire employees and reach levels of previous headcount to achieve maximum loan forgiveness. Many employees may not be in a position to return to work due to ongoing safety concerns, childcare obligations, or because they are in industries which have not received government clearance to continue operations. The SBA and Treasury intend to issue an interim final rule excluding laid-off employees whom the borrower offered to rehire, at the same salary or wages and same number of hours, from the loan forgiveness reduction calculation.

We expect the interim final rule will provide additional information on how to document the rehire attempts, however, the FAQ points to a written offer of rehire, made in good faith to the employee. The employee’s rejection of that offer must be documented by the borrower. While these procedures will help borrowers with the forgiveness reduction calculations involving FTE counts, borrowers are still expected to spend 75% of their loan proceeds on payroll cost.

Many questions remain as to the PPP use of funds and forgiveness considerations. We expect the SBA and the Treasury to continue to issue more information in the coming days. In particular, the eight-week period, which started when a borrower was funded their loan amount, is troubling for many businesses who are not yet able to operate. The American Institute of Certified Public Accountants (AICPA) has recommended to the SBA and Congress that the eight-week covered period should start when operating restrictions are lifted, rather than the date loan proceeds are received, which would help the businesses most impacted by the COVID 19 crisis.  

VonLehman experts have compiled a COVID-19 Resource Center to keep you up-to-date with breaking developments. Here, you can find numerous resources, specific to your industry, to help you navigate these difficult times. For any questions related to this article, contact Emir Hodzic at ehodzic@vlcpa.com or 800.887.0437.