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Dear Reader,

We would like to bring to your notice the revisions made by the recently revised SBA Interim Final Rule (the “IFR”) to conform to the changes made by the Paycheck Protection Program Flexibility Act (“PPPFA”) to forgiveness component of the PPP Loan.

The PPPFA provided that a borrower must use at least 60% of the PPP loan proceeds for payroll costs to be eligible for loan forgiveness, which is a change from 75% in the previous rules. The SBA and the Treasury Department have interpreted this 60% threshold as a “proportional limit on nonpayroll costs as a share of the borrower’s loan forgiveness amount, rather than as a threshold for receiving any loan forgiveness.

Therefore, the revised IFR states that “in order to receive full loan forgiveness, a borrower must use at least 60% of the PPP Loan funds for payroll costs, and not more than 40% of the loan forgiveness amount may be attributable to nonpayroll costs.

If a borrower uses 59% of its PPP Loan for payroll costs, the borrower will not receive the full amount of loan forgiveness it might otherwise be eligible to receive. Instead, the borrower will receive partial loan forgiveness, based on the requirement that 60% of the forgiveness amount must be attributable to payroll costs.

For Example: If a borrower receives a $100,000 PPP Loan, and during the covered period the borrower spends $54,000 (or 54%) of its loan proceeds on payroll costs, then because the borrower used less than 60% of its loan proceeds on payroll costs, the maximum amount of loan forgiveness the borrower may receive is $90,000 (with $54,000 in payroll costs constituting 60% of the forgiveness amount and $36,000 in nonpayroll costs constituting 40% of the forgiveness amount).

If you have any questions about the revised PPP Loan forgiveness application, Paycheck Protection Flexibility Act, revised SBA Interim Rules and the loan forgiveness under the PPP program, please contact Christopher L. Rasmussen, Managing Partner, Inventus Law, PC., at chris@inventuslaw.com or Aakshita Bansal, Extern, Inventus Law, PC., at aakshita@inventuslaw.com.


Disclaimer: This Memo is being provided for information purposes only and is drafted entirely on the bases of public resources. Information contained on or made available herein is not intended to and does not constitute legal advice, recommendations, mediation or counseling under any circumstance. This information and your use thereof do not create an attorney-client relationship. You should not act or rely on any information provided herein without seeking the advice of a competent attorney licensed to practice in your jurisdiction for your particular business. We anticipate that additional guidelines or interim rules pertaining to PPP Loan forgiveness might be issued by the SBA in the near future, which we will continue to monitor and provide updates on.

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