Earlier this week, Treasury and the SBA issued their 20th Interim Final Rule.

The Good News

Treasury and the SBA have announced that a borrower may submit a loan forgiveness application before the end of the covered period.

The Bad News

This flexibility may have little practical effect. We believe that most borrowers will be required to include their quarterly payroll tax returns with their loan forgiveness applications. A minority of borrowers will be able to achieve full forgiveness using expenses through 6/30/2020. They will be able to use their second quarter payroll tax returns and file for forgiveness as early as late July. However, a majority of borrowers will need to use most, if not all, of the 24-week covered period. They will need to include their third and possibly fourth quarter payroll tax returns with their applications.

Absent additional rule changes, most borrowers will not be applying for loan forgiveness until at least October.

Oh, What a Surprise. Yes! And Maybe?

The Paycheck Protection Program Flexibility Act, H.R. 7010, created a new FTE safe harbor for businesses that are not able to return to their prior level of activity by 12/31/2020 based on federal COVID-19 rules or guidance. Treasury and the SBA have adopted a very expansive interpretation of this provision. Compliance with state and local orders will qualify for this safe harbor because those orders are based in part on the guidance from the Department of Health and Human Services, the Centers for Disease Control, or the Occupational Safety and Health Administration.
In addition, it appears that this safe harbor may be applied during the covered period. A business does not need to wait until 12/31/2020 to apply this safe harbor.

So, a restaurant that was subject to dine-in restrictions would not be subject to the FTE limitation. But, what about the restaurant’s suppliers? Does the “direct or indirect” language in the Interim Final Rule apply? Or, does “indirect” only encompass the state and local rules, which are indirectly based on the federal rules? In other words, do state and local rules that affect a business’s customers, and therefore indirectly affect the business itself, qualify the business for this safe harbor? Obviously, further guidance is needed. Either way, far fewer borrowers will be subject to FTE limitations.

As we said in Part VI, while the changes made by the Paycheck Protection Program Flexibility Act, including the 24-week covered period, will probably result in greater loan forgiveness, it requires you to plan carefully and also comes with the cost of additional data gathering and reporting. If you would like assistance, please contact one of your team members here at LSL.

We will keep you posted if we receive any additional significant guidance from Treasury and the SBA.