In my last post, The PPP Debacle: You are Not Alone, I listed some items that needed clarification from the SBA and Treasury in the Paycheck Protection Program loans. I’m not saying they heard me, but…
They did issue clarification on some items today that should eliminate some confusion for the banks and borrowers. The entire document is available to view or download below.
Am I more encouraged than I was yesterday? Yes. I think the banks were paralyzed on some of these issues and were not moving forward on the applications, even if they had accepted them. I hope with this new information, they will start processing the applications and will start communicating a funding timeline to borrowers.
Defining the Lookback Period for Average Monthly Payroll Costs
The new guidance says you may use EITHER the 2019 calendar year or the previous twelve months.
Clarification of PEO Documentation
Since many banks were requesting the quarterly 941 reports, businesses that use a Professional Employer Organization (PEO) were struggling with what to give the lender to verify payroll. The FAQ’s gives some suggested documents that the PEO can provide that the lender can accept as verification.
Clarification of payroll tax exclusion from average monthly payroll costs
The Interim Final Guidance from last week created a new question of whether employee tax withholdings could or could not be included in the monthly payroll calculation. The guidance today clarified that you may use GROSS WAGES, which would include any taxes paid by the employees. The calculation still should not include any employer paid federal taxes.
Lender’s Requirements to Verify Average Monthly Payroll Calculation
Fortunately, the SBA and Treasury Department clarified the lender’s role in verifying the Average Monthly Payroll calculation, which will hopefully reduce the amount of documentation some banks were collecting.
The FAQ’s released today say that the lender does not need to verify each borrower’s calculation.
“Providing an accurate calculation of payroll costs is the responsibility of the borrower, and the borrower attests to the accuracy of those calculations on the Borrower Application Form. Lenders are expected to perform a good faith review, in a reasonable time, of the borrower’s calculations and supporting documents concerning average monthly payroll cost. For example, minimal review of calculations based on a payroll report by a recognized third-party payroll processor would be reasonable.”
What if the lender already approved or funded a loan under the old guidelines?
The SBA and Treasury says that’s okay, you don’t have to go back and redo the loan. However, if a business has already submitted an application and wants to update their computations based on this guidance, they may do so before their application is processed.
Since the lenders I have been in contact with have not even begun processing these loans, this gives you time to recalculate your payroll costs, if you were one of the unfortunate ones that submitted a smaller average monthly payroll number based on last week’s guidance.
I’m Not Celebrating Yet… But I Am Ordering the Champagne
So, this program hasn’t been forgotten and I am hopeful this guidance will eliminate some of the big roadblocks that were keeping lenders from processing these applications. I don’t know if borrowers will see funding this week, but I feel more confident that they will hear from their lenders this week with some timeline information.