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June 23, 2020; Journal of Accountancy

Earlier this week, the SBA’s Paycheck Protection Program (PPP) released yet another document of final interim guidance. This particular interim final rule was developed and issued in conjunction with the Treasury, and it largely reflects what we already knew to be the provisions of the Paycheck Protection Program Flexibility Act of 2020, about which we have previously written.

But what is clarified is that borrowers can apply early for loan forgiveness. If they have cut salaries more than is allowed, they’ll forfeit the “safe harbor” provision allowing them to restore salaries or wages by the end of the year.

Here is an example taken directly from the Journal of Accountancy:

A borrower is using a 24-week covered period. This borrower reduced a full-time employee’s weekly salary from $1,000 per week during the reference period to $700 per week during the covered period. The employee continued to work on a full-time basis during the covered period, with an FTE of 1.0. In this case, the first $250 (25 percent of $1,000) is exempted from the loan forgiveness reduction. The borrower seeking forgiveness would list $1,200 as the salary/hourly wage reduction for that employee (the extra $50 weekly reduction multiplied by 24 weeks). If the borrower applies for forgiveness before the end of the covered period, it must account for the salary reduction for the full 24-week covered period (totaling $1,200).

Perhaps it goes without saying, but the guidance also reinforces that the borrower must be able to document the amount to be forgiven. Lenders are expected to perform a good-faith review, but lenders are not required to do independent verification of that information as long as the borrower supplies documentation supporting its request, and attests that it has accurately verified the payments for eligible costs.—Ruth McCambridge