Borrowers who received Paycheck Protection Program (PPP) loan proceeds may want to wait to apply to their lender for loan forgiveness until after June 30, 2020.
Borrowers may apply to their lenders to receive loan forgiveness at the end of the covered eight-week period (i.e. the conclusion of the 56 days from receipt of the PPP loan proceeds) if they did not have (1) a reduction in workforce or (2) a reduction in employee compensation after February 15, 2020.
However, if borrowers reduced staff and/or reduced employee compensation after February 15, 2020, they may want to consider waiting until after June 30, 2020 to apply to their lender to receive PPP loan forgiveness. There are two SAFE HARBOR provisions under the SBA Paycheck Protection Program that borrowers should consider before completing and submitting the application to their lenders seeking PPP loan forgiveness.
1. Wage Reduction Safe Harbor
If you had to reduce employee compensation by more than 25% after February 15, 2020, you have until June 30, 2020 to restore employee compensation. If you restore employee compensation to at least 75% of their earnings for the pay period that included February 15, 2020, you are eligible for the SAFE HARBOR even if you used all your PPP loan proceeds prior to June 30, 2020. However, you must be able to certify that you restored employee compensation by June 30, 2020.
Example: Monthly payroll prior to February 15, 2020 was $20,000. You reduced monthly payroll to $10,000 after February 15, 2020. You use all your PPP loan proceeds on eligible expenses by June 15, 2020. If you restore monthly payroll to at least $15,001 by June 30, 2020, you should be eligible for the SAFE HARBOR if you otherwise satisfy the requirements for PPP loan forgiveness.
2. Full Time Equivalent (FTE) Reduction Safe Harbor
If you had to reduce your FTE employee workforce, you have until June 30, 2020 to rehire your employees and staff. You are eligible for the SAFE HARBOR if you had a reduction in FTE employee levels during the period beginning February 15, 2020 and ending April 26, 2020 and you restore your FTE employee levels by no later than June 30, 2020 to the FTE employee levels you had during the pay period that included February 15, 2020.
Example: You employed 10 FTE employees on February 15, 2020 and you furloughed 5 FTE employees on March 15, 2020. You received your PPP loan proceeds on April 10, 2020. If you bring back those 5 furloughed FTE employees by June 30, 2020, you should be eligible for the SAFE HARBOR if you otherwise satisfy the requirements for PPP loan forgiveness.
Conclusion
You still have until June 30, 2020 if you received PPP loan proceeds but have not yet restored employee payroll or employee headcount. If you are able to restore employee payroll and employee headcount prior to June 30, 2020, you may be eligible for a SAFE HARBOR for PPP loan forgiveness. If you have questions about whether your PPP loan will be forgiven, please contact me to discuss prior to June 30, 2020 at (619) 696-0520.