Expertise Beyond the Numbers

SBA Confirms PPP Recipients Can Apply Early for Loan Forgiveness

Updated 7/2/2020 at 9:05am ET

UPDATE 7/2: Congress has voted to extend the deadline to apply for forgivable Paycheck Protection Program loans. Businesses now have until Aug. 8 to apply for the aid. President Trump is expected to sign the bill.


SC&H’s Key Takeaways

  • Borrowers may apply for PPP loan forgiveness before the end of their covered period, but it might cost them money via the forfeiture of the 12/31 salary restoration deadline.
  • It clarifies that borrowers have until the maturity of their PPP loan to submit an application for forgiveness.
  • In calculating forgivable costs, business owners may include the following costs:
    • Self employed individuals – self employment earnings only (subject to $20,833 limit), with no addition for health premiums or retirement contributions
    • S corporation owner-employees – cash compensation (subject to $20,833 limit), plus employer retirement contributions, but not health premiums
    • C corporation owner-employees – cash compensation (subject to $20,833 limit), plus employer-paid retirement contributions and health premiums

On Monday, June 22, 2020, the Small Business Administration (SBA) released its latest interim final rule (IFR), which mostly covers adjustments to prior IFRs for implementing the new legislation introduced by the passing of the Paycheck Protection Program Flexibility Act (PPPFA) but more importantly, declares that PPP recipients can apply for loan forgiveness early but that doing so could cost them money.

Introduction of Early Loan Forgiveness Applications

This is one of the most frequently asked questions we have received – borrowers are wondering if they’re able to apply for loan forgiveness before the expiration of their covered period?

This latest IFR affords borrowers the opportunity to apply early: “A borrower may submit a loan forgiveness application any time on or before the maturity date of the loan – including before the end of the covered period – if the borrower has used all of the loan proceeds for which the borrower is requesting forgiveness. If the borrower applies for forgiveness before the end of the covered period and has reduced any employee’s salaries or wages in excess of 25 percent, the borrower must account for the excess salary reduction for the full 8-week or 24-week covered period.”

But borrower beware with this guidance. While many will want to get the forgiveness out of the way as soon as possible, there may be little benefit to doing this as those that apply early for loan forgiveness will forfeit the safe-harbor provision allowing them to restore salaries or wages by Dec. 31 and avoid reductions in the loan forgiveness they receive.

This move would only seem to make sense for borrowers who have already spent all of the loan proceeds and made little to no changes to salaries or headcounts along the way.

Other Notable Items in the IFR

  • Borrowers can still apply for forgiveness at any point before the loan maturity date.
  • It is the borrower’s responsibility to provide an accurate calculation of the loan forgiveness amount. Lenders must perform a good-faith review, but they are mostly off the hook beyond that, provided that the borrower has the proper documentation and certifies that they’ve spent the proceeds on eligible costs.
  • Employer health insurance contributions for S corporation owners cannot be included when calculating payroll costs; however, employer retirement contributions for S corporation owners are eligible costs.
  • For owner-employees and self-employed individuals – forgiveness for owner compensation is calculated for the eight-week period as 8 ÷ 52 × 2019 compensation, up to a maximum of $15,385, in total for all businesses. For the 24-week period, the forgiveness calculation is limited to 2.5 months’ worth (2.5 ÷ 12) of 2019 compensation, up to $20,833, also in total for all businesses.

If you have any questions or would like to speak with one of our team members, please don’t hesitate to reach out. SC&H is here to help.