Citizens Bank is committed to providing our PPP borrowers timely and accurate information to assist them in maximizing PPP loan forgiveness. As we all await definitive guidance on what will be required, third party resources are becoming available that interpret the CAREs act itself, and many are beginning to make assumptions based upon what is in the act, the guidance and FAQ and other sources of SBA knowledge.
Smith Amundsen is a well-respected Indianapolis law firm that among other things specializes in banking law. They have published a significant amount of useful information on their website that can be found at salawus.com. We would specifically draw your attention to a 1-hour webinar that they published entitled: “You received your PPP Loan or Your Application is in Process: What You Must Do Now.” The webinar can be found at https://www.youtube.com/watch?v=rqpmFZcNjo4&feature=youtu.be.
We believe you will find it time well spent.
One item the webinar brings to light is a potential reduction in forgiveness that borrowers may face if they have a reduction in headcount during the 2-15-20 to 6-30-20 period. This rule has not been well publicized and is not discussed in the Treasury Department FAQ or the SBA PPP Final Interim Rule. The rule is part of the CARES act itself which can be found in its entirety online.
Following is cut directly from the rule:
(b) FORGIVENESS.—An eligible recipient shall be eligible for forgiveness of indebtedness on a covered loan in an amount equal to the sum of the following costs incurred and payments made during the covered period:
(1) Payroll costs.
(2) Any payment of interest on any covered mortgage obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation).
(3) Any payment on any covered rent obligation. (4) Any covered utility payment.
(c) TREATMENT OF AMOUNTS FORGIVEN.—
(1) IN GENERAL.—Amounts which have been forgiven under this section shall be considered canceled indebtedness by a lender authorized under section 7(a) of the Small Business Act (15 U.S.C. 636(a)).
(2) PURCHASE OF GUARANTEES.—For purposes of the purchase of the guarantee for a covered loan by the Administrator, amounts which are forgiven under this section shall be treated in accordance with the procedures that are otherwise applicable to a loan guaranteed under section 7(a) of the Small Business Act (15 U.S.C. 636(a)).
(3) REMITTANCE.—Not later than 90 days after the date on which the amount of forgiveness under this section is determined, the Administrator shall remit to the lender an amount equal to the amount of forgiveness, plus any interest accrued through the date of payment.
(4) ADVANCE PURCHASE OF COVERED LOAN.—
(A) REPORT.—A lender authorized under section 7(a) of the Small Business Act (15 U.S.C. 636(a)), or, at the discretion of the Administrator, a third party participant in the secondary market, may, report to the Administrator an expected forgiveness amount on a covered loan or on a pool of covered loans of up to 100 percent of the principal on the covered loan or pool of covered loans, respectively.
(B) PURCHASE.—The Administrator shall purchase the expected forgiveness amount described in subparagraph (A) as if the amount were the principal amount of a loan guaranteed under section 7(a) of the Small Business Act 636(a)).
(C) TIMING.—Not later than 15 days after the date on which the Administrator receives a report under subparagraph (A), the Administrator shall purchase the expected forgiveness amount under subparagraph (B) with respect to each covered loan to which the report relates.
(d) LIMITS ON AMOUNT OF FORGIVENESS.—
(1) AMOUNT MAY NOT EXCEED PRINCIPAL.—The amount of loan forgiveness under this section shall not exceed the principal amount of the financing made available under the applicable covered loan.
(2) REDUCTION BASED ON REDUCTION IN NUMBER OF EMPLOYEES.—
(A) IN GENERAL.—The amount of loan forgiveness under this section shall be reduced, but not increased, by multiplying the amount described in subsection (b) by the quotient obtained by dividing— (i) the average number of full-time equivalent employees per month employed by the eligible recipient during the covered period; by (ii)(I) at the election of the borrower— (aa) the average number of full-time equivalent employees per month employed by the eligible recipient during the period beginning on February 15, 2019 and ending on June 30, 2019; or (bb) the average number of full-time equivalent employees per month employed by the eligible recipient during the period beginning on January 1, 2020 and ending on February 29, 2020; or (II) in the case of an eligible recipient that is seasonal employer, as determined by the Administrator, the average number of full-time equivalent employees per month employed by the eligible recipient during the period beginning on February 15, 2019 and ending on June 30, 2019.
(B) CALCULATION OF AVERAGE NUMBER OF EMPLOYEES.—For purposes of subparagraph (A), the average number of full-time equivalent employees shall be determined by calculating the average number of full-time equivalent employees for each pay period falling within a month.
(3) REDUCTION RELATING TO SALARY AND WAGES.—
(A) IN GENERAL.—The amount of loan forgiveness under this section shall be reduced by the amount of any reduction in total salary or wages of any employee described in subparagraph
(B) during the covered period that is in excess of 25 percent of the total salary or wages of the employee during the most recent full quarter during which the employee was employed before the covered period. (B) EMPLOYEES DESCRIBED.—An employee described in this subparagraph is any employee who did not receive, during any single pay period during 2019, wages or salary at an annualized rate of pay in an amount more than $100,000.
(4) TIPPED WORKERS.—An eligible recipient with tipped employees described in section 3(m)(2)(A) of the Fair Labor Standards Act of 1938 (29 U.S.C. 203(m)(2)(A)) may receive forgiveness for additional wages paid to those employees.
(5) EXEMPTION FOR RE-HIRES.—
(A) IN GENERAL.—In a circumstance described in subparagraph (B), the amount of loan forgiveness under this section shall be determined without regard to a reduction in the number of full-time equivalent employees of an eligible recipient or a reduction in the salary of 1 or more employees of the eligible recipient, as applicable, during the period beginning on February 15, 2020 and ending on the date that is 30 days after the date of enactment of this Act.
(B) CIRCUMSTANCES.—A circumstance described in this subparagraph is a circumstance— (i) in which—
(I) during the period beginning on February 15, 2020 and ending on the date that is 30 days after the date of enactment of this Act, there is a reduction, as compared to February 15, 2020, in the number of full-time equivalent employees of an eligible recipient; and
(II) not later than June 30, 2020, the eligible employer has eliminated the reduction in the number of full-time equivalent employees; (ii) in which— (I) during the period beginning on February 15, 2020 and ending on the date that is 30 days after the date of enactment of this Act, there is a reduction, as compared to February 15, 2020, in the salary or wages of 1 or more employees of the eligible recipient; and (II) not later than June 30, 2020, the eligible employer has eliminated the reduction in the salary or wages of such employees; or
(iii) in which the events described in clause (i) and (ii) occur.
(6) EXEMPTIONS.—The Administrator and the Secretary of the Treasury may prescribe regulations granting de minimis exemptions from the requirements under this subsection.
Citizens Bank will continue to bring you information and resources as they become available.
Citizens Bank recommends that you consult your outside advisors and experts in all matters relating to the PPP and loan forgiveness. We will work to provide you timely and accurate information, but the burden for obtaining forgiveness rests on the borrower. All information provided in this format or any other communication regarding the program is believed to be accurate, but no guarantee is or can be made by any Citizens Bank representative.