The SBA, in an interim final rule effective as of April
30, 2020, allowed seasonal employers to use the third
time period for calculating their loan amount. In a
subsequent interim final rule, the SBA provided that if
a seasonal employer received its PPP loan before the
alternative criterion (May 1, 2019 to Sept. 15, 2019) was
posted and would be eligible for a higher maximum
loan amount under the alternative criterion, then such
seasonal employer could increase its loan amount by
using the alternative criterion.
Seasonal employers should choose the time period
that gives them the largest loan amount. For those in
the agricultural business, this will likely depend on their
growing season.
The CARES Act, unfortunately, does not define a
“seasonal employer,” though it did indicate that the
SBA would determine whether a business is seasonal.
Presumably, many businesses in the food and
agricultural sector will qualify as seasonal employers.
PPP Forgiveness
All businesses, seasonal or otherwise, may have their
PPP loans forgiven if they use the PPP loan for eligible
costs, such as payroll, interest on secured loans,
rent, and utilities, and their forgiveness amount isn’t
otherwise reduced as discussed below. If a borrower’s
loan is not fully forgiven, then the amount not forgiven
would be treated as a conventional unsecured loan with
one percent interest and a maturity of two years.
The CARES Act as well as other guidance from the SBA,
including the PPP Loan Forgiveness Application issued
on May 15, 2020 (Forgiveness Application), provide that
a borrower may have its forgiveness reduced – in other
words, will have to pay some or all of the loan back – in
three situations. Specifically, the borrower will not have
its loan fully forgiven if it:
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reduces full-time equivalency (FTE) employees
during the chosen forgiveness period,
reduces average annual salary or hourly wages
more than 25 percent for employees during the
chosen forgiveness period, or
spends more than 25 percent of its loan on nonpayroll
costs.
Assuming a borrower uses all of its PPP loan on eligible
costs and its forgiveness amount is not reduced by
any of the three situations described above, then its
loan will be fully forgiven. Note that a borrower may
also have its forgiveness amount reduced if it received
an Economic Injury Disaster Loan (EIDL) advance. The
Forgiveness Application provides that a borrower’s final
forgiveness amount will be reduced by the amount of
its EIDL advance, if any.
Before discussing how a borrower’s forgiveness
amount may be reduced, it is important to note
one key feature of the Forgiveness Application,
which offers more flexibility to certain borrowers in
choosing their forgiveness period for payroll costs.
The Forgiveness Application allows PPP borrowers
with a biweekly or more frequent payroll schedule
to elect to calculate eligible payroll costs using the
eight-week period beginning on the first day of their
first pay period following their PPP loan disbursement
date (the “Alternative Payroll Covered Period”). Prior
to this guidance, borrowers were expected to calculate
eligible payroll costs using the eight-week period
beginning immediately after the loan disbursement
date (the “Covered Period”). The SBA believes this will
create administrative convenience for the borrower.
This new change is more flexible and favorable to
borrowers because the “Alternative Payroll Covered
Period” should now more easily conform to an
employer’s normal pay period schedule.
Average Annual Salary or Hourly Wage Reduction
A borrower’s expected forgiveness amount—the
amount spent on eligible costs during the applicable
forgiveness period—will be reduced if the business
decreases an employee’s average annual salary or
hourly wages by more than 25 percent during the
chosen forgiveness period (either the Alternative Payroll
Covered Period or the Covered Period) as compared to
the period of Jan. 1, 2020 through March 31, 2020.
Importantly, the expected forgiveness amount is
only reduced by the amount of a salary cut in excess
of 25 percent. Also, for purposes of this reduction,
employees who at any time in 2019 made over
$100,000 on an annualized basis can have their salaries
cut without affecting forgiveness.
Below are three example of how salary reductions