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The first IFR (RIN 1505-AC69) provides guidance on obtaining PPP loan forgiveness and clarifies the instructions for the Forgiveness Application (Form 3508). The most significant provisions of the IFR are that the SBA permits the use of bonuses and hazard pay and allows the use of PPP loan proceeds for costs paid or incurred during the covered period. Other items contained in the IFR are described below. The second IFR (RIN 3245-AH47) involves lender requirements if the SBA reviews a loan or Forgiveness Application and that lenders will not be entitled to loan processing fees for any PPP loan where the borrower is found to be ineligible by the SBA – the lender will be required to repay the SBA any fees previously paid. Other details of the IFR are noted below.

The SBA released two new Interim Final Rules (IFRs) on May 22, 2020. The first IFR addresses loan forgiveness requirements and the second IFR outlines SBA review procedures and lender responsibilities.

First IFR – Loan Forgiveness Requirements

1. Loan Forgiveness Process

• The borrower must complete SBA Form 3508 or a lender’s equivalent form.
• The lender has 60 days from the receipt of a completed form to issue a decision to the SBA regarding loan forgiveness.
• The SBA will remit the forgiveness amount to the lender within 90 days after the lender issues its decision – subject to SBA review.

2. Payroll Cost Eligible for Forgiveness

• A borrower may pay furloughed employees their salary, wages, commissions, or similar compensation during the Covered Period of 8-weeks – even if these employees did not perform their day to day duties.
• The SBA determined that hazard pay, and bonuses are eligible for loan forgiveness. These payments are subject to the $100,000 limitation on PPP payroll costs per employee.

3. Paid or Incurred Qualifying Expenses – Payroll and Non-Payroll Costs

• The SBA clarified that borrowers could seek forgiveness for eligible qualifying expenses paid or incurred during the Covered Period.
• Payroll costs and other qualifying expenses incurred but not paid during the Covered Period are eligible for forgiveness if paid by the next regularly scheduled payroll date or non-payroll costs are paid by the next billing date.
• The IFR reiterates that no advance payments of interest on mortgage obligations will be eligible for loan forgiveness.

4. Forgiveness Amount Reductions

• A borrower’s loan forgiveness will not be reduced if the borrower laid-off or reduced the hours of an employee and then offered to rehire the same employee for the same hours and salary, but the employee declined the offer. The borrower must have documentation and notify the state unemployment insurance office.
• Other items clarified by the SBA are reductions based on full time equivalents, and reductions based on salary.

Second IFR – SBA Review Procedures and Lender and Borrower Responsibilities

1. The SBA reaffirms the right to review any PPP loan and Forgiveness Application at its discretion.

• This should not be confused with the SBA’s safe harbor announcement regarding the necessity of loans under $2 million.
• Borrowers must retain documents related to loan forgiveness for 6 years after the loan is forgiven or repaid.

2. Borrowers are ultimately responsible for the loan forgiveness calculation; however, the lender must perform a good faith review of the application and documentation.

3. If a lender denies loan forgiveness the borrower may appeal this to the SBA. The SBA will issue a future IFR on the appeal process.

4. If a borrower received PPP but is found to be ineligible, the lender must inform the borrower and the lender is not entitled to loan processing fees. Any fees previously paid to the lender for that loan are subject to be recovered by the SBA.