SBA tweaks loan forgiveness timeline

Jacob Shevin was ahead of the Small Business Administration.

The SBA recently published new guidance allowing businesses more flexibility in calculating forgiveness of Paycheck Protection Program loans.  Originally, funds had to be spent during an eight-week period that began as soon as the loan was deposited in the borrower’s bank account. Now, it says the eight weeks can start on the first payroll date following receipt of the loan.

“That’s how our bank assumed it should be anyway,” said Shevin, president of Home Furnishings Association member Standard Furniture in Birmingham, Ala.

The SBA last week released the application form for loan forgiveness, which must be submitted to the borrower’s lender. Its instructions give this example of what SBA calls the Alternative Payroll Covered Period:

“If the borrower received its PPP loan proceeds on Monday, April 20, and the first day of its first pay period following its PPP loan disbursement is Sunday, April 26, the first day of the Alternative Payroll Covered Period is April 26 and the last day … is Saturday, June 20.”

Shevin’s loan came through on April 15, but the company’s next pay period didn’t begin until May 8. That pushes the eight-week period into July. Because three-fourths of loan funds must be used for payroll costs to qualify for forgiveness, that gives Shevin more time to call back employees who had to be placed on furlough when business plummeted while stores were closed or seeing depressed sales. Shevin still isn’t sure he’ll meet the 75 percent threshold, but he’ll come closer.

The HFA presses for more flexibility

The Home Furnishings Association has pressed for much more flexibility than that.

“Many retail furniture stores are under mandated shutdowns,” the HFA wrote in early April to the SBA, Treasury Department and key Senate leaders. “Many expect they will not be allowed to reopen until May or even June. Calculating the portion of their loan that can be forgiven based on expenses during an eight-week period when they are likely to be closed does not help them. …

“More flexibility and an extended loan period would help make sure they can most effectively utilize the resources available. This could be tied to a date when a business is able to reopen rather than starting the eight-week period while the business is shuttered, with no definite opening date.”

While the SBA did not respond, Congress has heard those concerns. Several legislative proposals would extend the time frame to earn loan forgiveness and are drawing bipartisan support.

Loan forgiveness application form runs 11 pages

In the meantime, however, many borrowers may be nearing the end of their eight-week period, meaning it’s almost time for them to apply for loan forgiveness. Unfortunately, the 11-page application form, including instructions, is complicated. The SBA estimates it takes three hours to fill out.

“We hoped it would be an easier process,” Colin Barrett, president and CEO of the Tennessee Bankers Association, said on a National Federation of Independent Business webinar May 20.

Erik Asgeirsson, president and CEO of, expressed disappointment with the SBA loan forgiveness application form and its guidance.

“Some of the most pressing issues are not addressed and in other areas it appears new questions have arisen,” he said in a press release.

Bring back the same number of FTEs

Forgiveness of payroll costs requires the borrower to have the same number of employees – or full-time equivalent positions, with an FTE defined as a 40 hours per week position – at the end of the loan period or on June 30 as before the coronavirus crisis. An FTE is simply a number and does not necessarily have to represent the same employee.

Also, it won’t count against this number if:

  • An employee is terminated for cause.
  • An employee voluntarily resigns.
  • An individual declines a written offer to work.

The SBA did not change the 75/25 rule. At least three-fourths of loan funds must be used for payroll costs to earn forgiveness. The remaining 25 percent can be used for mortgage interest or rent/lease payments and utilities. But, because those and other costs can account for larger shares of furniture business expenses than payroll, HFA believes owners should be granted more leeway in how they spend loan funds. That would help Shevin and many other HFA members recover more of their costs.

The SBA guidance clarifies that business owners who pay themselves through owner draws rather than a salary can calculate their compensation based on eight weeks of 2019 compensation up to $15,385.

[HFA COVID-19 Recovery Resources]

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