The Current State of the PPP Forgiveness Process

On June 5th, President Trump signed the Paycheck Protection Program Flexibility Act of 2020, which made significant changes to the PPP program. The Bill he signed was the exact law passed as H.R. 7010 by the House of Representatives. Since then, the Treasury Department issued regulations on June 11th, which included some important pronouncements.

All of the information below, as well as any updates will be discussed at our PPP Loan Forgiveness Town Hall Webinar this Thursday the 18th at 10:00 am. Register for that HERE and send any questions you would like addressed ahead of time to

  1. No 60% Cliff

The Treasury Department does not consider the 60% requirement, which replaced the 75% requirement as to amounts spent on “payroll costs” to be a “cliff.” If a PPP borrower cannot spend 60% or more of the loan proceeds during the 8- or 24-week testing period on payroll, state and local payroll taxes, group health insurance and retirement plan contributions, then there will nevertheless be PPP loan forgiveness based upon whatever is spent on the above “payroll costs,” plus up to 66% of the amount spent on the above items, to the extent of permissible rent, interest and utility expenses.


  1. 24-Week Testing Period

Post-June 5 PPP borrowers will only be able to use the 24-week testing period, while borrowers who received their loans before June 5th can elect to use either an 8-week expenditure period or a 24-week expenditure period. Post-June 5th borrowers are required to use the 24-week period.

The 24-week period is advantageous, if the borrower would not be able to spend sufficient amounts and satisfy the 60% test within an 8-week period. The 8-week test is much more advantageous for borrowers who are able to spend the appropriate amounts during the 8-weeks, and then apply for forgiveness and have the loan over and done with, and off of their balance sheets, in order to be able to borrow conventionally going forward.


  1. Extended Maturity Date for Some

Loans made before June 5, 2020 have a 2-year maturity, and loans made on or after June 5th have a 5-year maturity.

Post-June 5th borrowers will not have to repay their loans until five years after the loan date, as long as they file their Applications for Forgiveness within ten months after the end of the 24-week testing period that they are required to use.

Pre-June 5th borrowers will still have a due date that is two years after the loan date, but banks and borrowers can agree to extend these loans to five years.


  1. Loan Date Clarified

For these purposes, a loan is considered to be made when the SBA assigns a loan number to the PPP loan, notwithstanding that the loan monies may not be received until several days later. This will cause some confusion, since the expenditure rules provide that a loan is to have been received when funded with the first dollars deposited into the bank account of the borrower. As a result of this, many borrowers who received their funds on or after June 5th will still be stuck with a 24-week testing period, and a very long wait for confirmation of forgiveness.


  1. Deadline for Forgiveness Application

The new regulations indicate that those borrowers who do not submit an Application for Forgiveness within ten months after the end of the 8- or 24-week period must begin paying principal and interest after that date, with no specificity as to how much principal and how much interest would need to be paid before the 2- or 5-year balloon payment of all remaining interest, at 1% per annum, and principal would be due and payable.


  1. Reduced Restrictions for Felons

Consistent with discussion in the Senate Committee on Small Business and Entrepreneurship, the newly updated Borrower Application on June 12th reveals that the rule that individuals that have had felony convictions within five years before applying cannot qualify was changed to one year, based upon considerations that are further discussed below, except that five years still applies if the charges were for fraud, robbery, embezzlement or a false statement in a loan application or an application for federal financial assistance. It is noteworthy that when a borrower entity has an ex-felon who owns more than 20%, then this prohibition will apply, but there is nothing to prevent the ex-felon from transferring enough ownership to get down below 20% in order for the business to qualify. A felony is considered to have occurred if there was a conviction, a guilty plea, a plea of nolo contendere or any form of parole or probation, “including probation before judgment.”


  1. Still Waiting for Additional Guidance for Sole Proprietors

There was no mention of independent contractors and whether they will be automatically forgiven based upon the ability to elect the 24-week period.

Under the separate rules that apply to individuals who are considered to be independent contractors or sole proprietors who file a Schedule C to their personal Form 1040, which is entitled “Profit or Loss From Business,” it would be impossible under an 8-week testing period to have all debt qualify for forgiveness.

Under the independent contractor PPP regulations, the amount of the loan would be equal to 20.8333% (2.5 divided by 12) of the borrower’s 2019 Schedule-C net income. 15.3846% of the PPP loan to an independent contractor who does not have employees is automatically forgiven based on an 8-week testing period, because 8/52nds of 100% is 15.3846%, and 15.38% divided by 20.83% is 73.835%. This happens regardless of how that money is spent, because it is assumed to be compensation received and paid to or for the independent contractor.

The remaining 5.4487% would have to be spent on qualified rent, interest and utilities to get close to having total forgiveness. Total forgiveness was impossible under the 75% rule, but is now hopefully going to be the rule of the land for all living independent contractors who choose the 24-week period, unless future guidance takes this away, because 24/52nds equals much more than 20.8333%.

No guidance has yet been provided, but millions of fingers are crossed and half that many people are hoping that this will be the case. This will mean that independent contractors will have a very short and simple Application for Forgiveness.

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