Partial PPPF Loan Forgiveness Remains
If 60% Threshold Not Met Based On SBA Updated Guidance

COVID-19 Business Update

Under the Paycheck Protection Program Flexibility Act of 2020 (PPPFA), which updates the Paycheck Protection Program (PPP), borrowers can qualify for partial loan forgiveness if less than 60% of the PPP loan is used for payroll based on updated guidance recently issued by the U.S. Small Business Administration (SBA). Legislation signed June 5 lowered to 60% from 75% the minimum percentage of PPP funds borrowers have to spend on payroll costs to have the loans forgiven. But while the original PPP rules allowed for partial loan forgiveness under the 75% basement, the new bill passed by Congress had language that could be interpreted as saying that if the borrower did not spend at least 60% of the PPP funds on payroll costs, none of the loan would be forgiven.

A recently issued joint statement from SBA Administrator Jovita Carranza and Treasury Secretary Steven Mnuchin clarified that partial loan forgiveness will also be available under the 60% threshold.

A borrower that spends less than 60% of their PPP loan amount on payroll costs will be able to have forgiveness on all of such payroll costs, plus non-payroll expenses for interest, rent and utilities, to the extent that such non-payroll expenses do not exceed 66 2/3% of the amount spent on payroll expenses.

Another way of calculating this is to divide payroll costs by 1.5 (or multiply them by 66 2/3%) to determine the maximum amount of interest, rent and utilities costs that can count towards forgiveness.

For example, if the loan was $150,000 and the borrower spends only $60,000 on payroll expenses and $50,000 on business mortgage interest, rent and utilities (total expenses of $110,000), then only $100,000 ($150,000 divided by 1.5) of the $110,000 of total expenses can be forgiven, instead of no forgiveness at all. Of this amount the entire $60,000 of payroll costs will be forgiven, and $40,000 (66 2/3% of $60,000) of business mortgage interest, rent and utilities.

The information presented here should not be construed as legal, tax, accounting, or valuation advice. No one should act on such information without appropriate professional advice and after a thorough examination of the particular situation.