Provided by Bart Gibson, Senior Vice President - Wealth Management, The Harris Gibson Group, UBS Financial Services Inc.

The US Small Business Administration (SBA) recently issued a new Interim Final Rule (IFR) regarding the Paycheck Protection Program (PPP), which offers significantly streamlined forgiveness steps for small loans and guidance for larger loan borrowers that can help increase forgiveness amounts.

Since August, business owners have been awaiting news that would help further streamline the forgiveness process for PPP loans. But after several weeks of no progress in Congress, the SBA released a new Interim Final Rule (IFR) on 8 October 2020 that offered a set of good news.

For small loans, total forgiveness is a lot simpler

For borrowers with a loan $50,000, or about 67% of all PPP borrowers per the SBA, the SBA has made three new exceptions. Important to note, borrowers who are affiliated with other businesses that in aggregate received PPP loans of $2 million or greater or have previously submitted a forgiveness application are not eligible for these new exceptions:

- A brand new simplified one-page loan forgiveness form (Form 3508S) that requires eligible borrowers to do fewer calculations and provide less documentation

- Eligible borrowers who use the new form are now exempt from the forgiveness amount reductions due to reductions in FTEs and salaries

- While eligible borrowers will have to maintain records in case of an SBA review, lenders no longer are required to verify eligible borrower’s data or calculations

For others, the SBA offered guidance that likely helps increase amounts forgiven

While smaller eligible borrowers now receive exemptions to the FTE and salary reduction rules, other borrowers also received what looks to be positive news that should help increase the overall amount that can be forgiven. The SBA addressed the question if borrowers submit costs that exceed the borrower’s PPP loan and instructed lenders to verify these “up to the amount required to reach the requested Forgiveness Amount” as opposed to an alternative method such as the loan amount.

While loan amounts were determined by calculating approximately 10 weeks of payroll costs, forgiveness is determined by taking the amount spent on eligible costs and reducing that amount by a percentage based on how much payroll costs were reduced due to fewer FTEs or salary cuts. While those reductions still apply, the increase in the Covered Period from 8 to 24 weeks allows the possibility of business owners spending more on eligible costs than the actual loan amount, which after the reduction math, may provide a higher total forgiveness amount. For example:

- A borrower with a $1 million loan spends $700,000 on eligible costs with at least 60% towards payroll costs in an 8-week period but reduced their payroll by 50%. As a result, $350,000 would be forgiven with a $650,000 loan remaining.

- With the expansion to 24 weeks, assuming all else constant, the borrower now spends $2.1 million on eligible costs. With $2.1 million in eligible costs and a 50% reduction, the borrower now is eligible for the full $1.0 million to be forgiven.

- Note, forgiveness cannot exceed the original principal amount.

The language in the IFR could certainly have been clearer and borrowers should consult their lenders and possibly their tax and legal advisors.

UBS does not provide legal or tax advice and this does not constitute such advice. UBS strongly recommends that persons obtain appropriate independent legal, tax, and other professional advice.

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