Below is a summary of the key changes from the First Loan Forgiveness Rule and First Loan Review Rule. For more information regarding these new changes or general details about the Paycheck Protection Program (PPP), please contact a member of Reed Smith’s CARES Act task force.
Changes to the First Loan Forgiveness Rule include the following:
- General: Proceeds from the PPP loans may be used for eligible non-payroll costs in an amount not to exceed 40 percent of the loan amount in order to be eligible for full loan forgiveness, an increase from the original 25 percent. The SBA also issued an alternative loan forgiveness application form – SBA Form 3508EZ.
- Loan forgiveness process: A borrower is required to submit an application for forgiveness using SBA Form 3508, 3508EZ, or a lender equivalent. If a borrower’s loan is deemed fully forgivable by the SBA, the lender must mark the PPP loan note as “paid in full,” which will be reported on the next 1502 report filed by the lender. The IFR also provided information for a borrower on when to apply for forgiveness or when payments must begin.
- Loan forgiveness may be applied for on or before the maturity date of the loan provided that the borrower has used all of the loan proceeds for which forgiveness is being requested. This also means that forgiveness may be applied for prior to the end of the covered period.
- If the borrower does not apply for loan forgiveness within 10 months of the last day of the covered period, or if it has been determined by the SBA that the borrower is not eligible for forgiveness, the lender must notify the borrower of the due date of the first payment on the loan.
- When must payroll costs be incurred or paid to be eligible for forgiveness? The covered period was extended from eight weeks to twenty four weeks. However, if PPP loan proceeds were received prior to June 5, 2020, a borrower may elect for the covered period to end eight weeks after the date of disbursement.