New PPP Rules Define Start of Forgiveness Period

Posted By Mike Meyer, Thursday, April 30, 2020

paying money back

By Patrick O'Brien, JD, legal coordinator, American Med Spa Association

The U.S. Small Business Administration (SBA) and the Department of the Treasury released new rules for the Paycheck Protection Program (PPP) this week. The rules—available here—govern some of the details about the disbursement of PPP loan funds.

To briefly recap, the PPP provides two-year 1% interest loans to small businesses equal to two and a half months of their average payroll costs. Loan funds spent in the first eight weeks of receiving the loans are forgivable, provided they are spent 75% on payroll costs and 25% on other approved business expenses. We cover more of the details here and in several webinars available here.

Obviously, determining when this eight-week window starts is very important, since money spent in the ninth week would still need to be repaid. Additionally, it would be beneficial to be able to delay the start of this period as much as possible in order to get closer to a projected re-opening date.

Unfortunately, the SBA rule takes much of the flexibility and uncertainty from this issue. In the rules, the eight-week window begins when the loan money is disbursed to the borrower. The bank is required to make this disbursement within 10 days of loan approval; loan approval, in this case, is not when the loan documents are signed, but rather when the SBA assigns a loan number to the file. Therefore, the borrower can only delay the start of the eight weeks by a maximum of 10 days from the SBA approval, and not 10 days from when they receive the documents. If the borrower does not return signed loan documents within 20 days of receiving them, the loan is canceled. Additionally, the loan money cannot be taken in draws in an attempt to extend the eight-week window—lenders are required to disburse the loan in a single lump sum.

While these new rules clear up exactly when the eight-week forgiveness window starts neither the SBA nor Department of the Treasury have released rules regarding how forgiveness works or what sort of documentation is needed. As many borrowers are already in the second or third week of the forgiveness window, hopefully some guidance will be released soon. Until there is formal guidance, the only official requirements are found in the Coronavirus Aid, Relief and Economic Security (CARES) Act itself and in the Treasury's earlier interim rule, which you can read here. AmSpa will endeavor to bring you the latest and most current information during the rapidly developing COVID-19 pandemic.

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