Clarification on PPP forgiveness rules issued, as first recipients face payments’ exhaustion

The release late Friday, May 22, of clarified rules on the Paycheck Protection Program (PPP) cleared up some aspects of the program, left some others uncertain but also drove home the point that for the first recipients, the end of the money isn’t that far away.

The primary purpose of the clarification issued by the U.S. Small Business Administration (SBA) was to reiterate earlier interim rules about qualifications and payback provisions for the PPP, which was designed to allow companies to help keep employees on the payroll rather than on the unemployment rolls. 

As the SBA rule released on May 22 notes, the eligible costs covered by PPP were to compensate for eight weeks of payroll expenses. With the first funds disbursed under the PPP on April 3, the 56-day period of payroll protection could be ending later this week for the first batch of recipients.

The PPP has been cited by some trucking market observers as keeping capacity on the road that might otherwise have disappeared under the weight of a collapse in demand. 

In various webinars and reports, lawyers, financial advisors and others who have worked with trucking companies to get funds under PPP were advising early on that recipients had better have their records in order to be able to show that when it came time for their eligibility for loan forgiveness to be determined, they would pass the SBA standards. 

The approval process for loan forgiveness is to ensure that the funds disbursed under PPP were going to meet the key goal of the program – making sure 75% of the money went to keep pay flowing into workers’ hands.  

The SBA released its loan forgiveness application earlier this month.

The details of the rule clarification did not impress the trucking law firm of Scopelitis Garvin Light Hanson & Feary. In an alert sent out on Saturday, May 23, the firm said the interim financial rule sent out “does not provide much by way of additional guidance.” That additional guidance would have been on top of a series of other SBA interim rules sent out on a somewhat regular basis since the program began. 

The overriding question all along for companies that borrowed under PPP was whether they would use those funds in a way that would allow their loan to be forgiven. 

In other words, could they take a loan and turn it into a grant?

The guidelines released on May 22, which follow up on earlier notices, review the procedure to have the loan forgiven: borrower completes a form; lender reviews the application; and lender makes a decision on forgiveness. The lender is supposed to let the borrower know within 60 days whether forgiveness is granted. The SBA then would send the money along to the lender. 

The latest SBA document spends a great deal of time discussing what constitutes acceptable payroll costs. Some of the key questions addressed:

If an employee is furloughed during the eight weeks but gets paid during that time, is that eligible for forgiveness? Yes, as long as the costs aren’t more than $100,000 per employee, the cap on salaries eligible for coverage under PPP.

Is compensation paid out as “hazard pay” or other bonuses somewhat common in the trucking industry during the pandemic eligible to be covered under PPP? Yes. 

Are owner-operators of a business eligible to have their loan forgiven? Yes. The document gives a fairly complicated answer to that question, and there are different ways of getting there, but yes, they are eligible. The calculation though is not straightforward. 

Besides pay, what is eligible? As was noted in other clarifications by SBA, such things as rent or mortgage payments are eligible with the provision that they don’t exceed 25% of the loan. One area that does not appear to be covered, much to the chagrin of smaller fleets, are lease payments or truck loan payments. 

What is the definition of a full-time employee? One who works 40 hours or more. If the worker puts in 30 hours, that is considered a 0.75 employee for purposes of loan forgiveness. (Note that this is not in the wording of the original CARES Act that established PPP. It is an SBA definition.)

The rule published by SBA also deals in such questions as pay reductions and how they are calculated into the eligible base for borrowing and forgiveness.

The second document released by SBA on May 22 reiterated that the agency continues to hold the power to investigate loans or borrowers it believes do not meet the goals of the PPP, which is to protect the pay of non-public smaller companies. “SBA may review any PPP loan,” the document states, spelling out several criteria that it might look at – eligibility, loan amounts and what it’s used for, and whether the borrower is entitled to loan forgiveness. 

Under the provisions set elsewhere, it’s the lender that determines the forgiveness, not the SBA. As the document says, lenders are expected to perform a “good faith review” to determine eligibility for loan forgiveness.

And in case there was any doubt, the SBA answers a firm “no” to the question: “If SBA determines that a borrower is ineligible for a PPP loan, can the loan be forgiven?”