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Engineer Firms to Pay 'Forgivable' PPP Loans

Wednesday, September 22, 2021

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In new guidance issued by the U.S. Department of Defense, engineering firms with contracts for state infrastructure projects are being instructed to repay forgivable federal payroll loans received during the COVID-19 pandemic.

According to reports, federal agencies overseeing the contracts say that repayment is necessary in order to prevent firms from being compensated twice for the same work.

About PPP, Previous Announcements

Established by the CARES Act in 2020, the Paycheck Protection Program was among the first COVID-19 small business economic aid programs and provided more than $798 billion in economic relief to small businesses and nonprofits across the nation, keeping employees working and helping businesses come back stronger than ever.

After a year of issuing aid, in March of this year the SBA released new guidance regarding revisions made to the Paycheck Protection Program that intends to make access to the PPP loans more equitable.

mphillips007 / Getty Images

In new guidance issued by the U.S. Department of Defense, engineering firms with contracts for state infrastructure projects are being instructed to repay forgivable federal payroll loans received during the COVID-19 pandemic.

The final rule arrived after President Joe Biden announced that his administration would be giving businesses with fewer than 20 employees and sole proprietors exclusive access to the portal from Feb. 24 through March 9.

According to the SBA, the final rule:

  • Allows for individuals who file an IRS Form 1040, Schedule C to calculate their maximum loan amount using gross income;
  • Removes the eligibility restriction that prevents businesses with owners who have non-financial fraud felony convictions in the last year from obtaining PPP loans; and
  • Removes the eligibility restriction that prevents businesses with owners who are delinquent or in default on their Federal student loans from obtaining PPP loans.

Through the establishment of the new rule, the Biden Administration envisions that lenders and community partners will have more time to work with the smallest businesses to submit their applications, while also ensuring that larger PPP-eligible businesses have time to apply for and receive support before the program expires at the end of the month.

Other changes to the program included:

  • Allowing sole proprietors, independent contractors and self-employed individuals to receive more financial support by revising the PPP’s funding formula for these categories of applicants;
  • Eliminating an exclusionary restriction on PPP access for small business owners with prior non-fraud felony convictions, consistent with a bipartisan congressional proposal;
  • Eliminating PPP access restrictions on small business owners who have struggled to make student loan payments by eliminating student loan debt delinquency as a disqualifier to participating in the PPP; and
  • Ensuring access for non-citizen small business owners who are lawful U.S. residents by clarifying that they may use Individual Taxpayer Identification Number (ITIN) to apply for the PPP.

However, despite these changes, borrowers who have already been approved for additional PPP loans can’t increase their loan amounts using the new formula, although the SBA said that it would consider reviewing first-time PPP borrowers who calculated their loan amounts using gross income of more than $150,000.

Two months later, in May, the second round of the PPP program came to an end, a collection of news sources were reminding small business borrowers to apply for loan forgiveness, although PPP forgiveness is not a guarantee.

At the time, whether a business was applying for either the PPP Draw 1, PPP Draw 2 or both loans, the terms of the loan(s) were relatively the same, requiring that eligible borrowers who qualify for full loan forgiveness should have carried out the following over the eight- to 24-week period upon receiving the loan:

  • Maintained employee staffing and compensation levels (in PPP Draw 2, having maintained the compensation levels the same as in PPP Draw 1);
  • Spent the loan proceeds on payroll costs and other eligible expenses (40%); and
  • Used at least 60% of the loan for covering payroll costs.

However, should a business fall short of the guideline, partial forgiveness could be an option.

To simplify the process of applying, the American Institute of Certified Public Accountants has created a free online platform, Once the form has been completed, the lender has 60 days to review the application and submit it to the SBA, which has 90 days to make a decision regarding forgiveness.

In July, the SBA announced that it was eliminating the Loan Necessity Questionnaire for PPP loans of $2 million or greater. The notice also declared that any questionnaires previously requested are no longer required and that any loans with an open request for additional information should be closed and resubmitted.

And the following month, the SBA announced a new initiative aimed at encouraging borrowers with Paycheck Protection Program loans of $150,000 or less to apply for loan forgiveness.

With borrowers within that loan bracket reported to make up more than 90% of all distributed loans during the pandemic-era program, the SBA has launched what it's calling a streamlined application portal for borrowers to apply for forgiveness directly through the SBA, instead of their participating lender.

The change in forgiveness application is slated to help rush relief to over 6.5 million of the smallest of small businesses. According to reports, the SBA issued nearly $800 billion in forgivable loans from April of last year through this May.

How it works is that through the SBA’s forgiveness site, borrowers will be able to submit applications directly into a format that officials estimate will take businesses just minutes to go through. While lenders will still have a say in whether individual PPP loans should be forgiven, the intent is to reduce the amount of time and effort that banks have been investing into the process.

Although, the SBA has also reported its plans to spare certain borrowers who received second PPP loans this year worth less than $150,000 from having to supply documentation proving that they suffered a 25% revenue reduction in 2020 that was required to receive the aid.

Instead, the Administration plans to use a combination of data sets to make the determinations, including information based on foot traffic and credit card charging.

Engineer Payback

Even though the establishment of the PPP mentions no legislative language calling for engineering firms to repay forgivable federal payroll loans received during the COVID-19 pandemic, guidance in August 2020 applied Federal Acquisition Regulation rules to engineering services on federally funded transportation projects.

In the Defense Department-issued guidance, the rules instruct firms with contracts in which expenses are covered to an agreed-upon limit with additional payment for profit must pay back the loans if they were used to pay for contractually covered costs.

To further explain, construction companies that received PPP loans working on and receiving payments for DOT contracts aren’t on the hook for repayment; however, engineering companies, which traditionally use cost-plus contracting, are.

As a result, an industry advocacy group reports that the request for repayment could send smaller firms into bankruptcy.

According to Robin Greenleaf, a Boston-based CEO of Architectural Engineers, PPP loans her company received were a vital source of funding during the pandemic. While the company is noted to receive about 15% of its workload from the Massachusetts Bay Transportation Authority, PPP helped to supplement that difference while projects were postponed or shut down.

Because of how the federal rules are being implemented, she’ll lose at least $129,000 a year, Greenleaf told the House Small Business Committee at a hearing in March, meaning she’ll have to make some of the reductions to her business that she had hoped the PPP loan would help her avoid.

Despite Greenleaf’s story, among others, the U.S. DOT was reported to back up the DoD’s decision in reinforcing the need to apply the regulations to cost-plus contracts.

“While the PPP was enacted to permit an impacted employer to retain its employees on the payroll, it was not enacted to provide an economic windfall to the employer,” read a memo issued by DoD in March, adding, “should the PPP loan proceeds be applied to costs within the scope of a federally funded contract and the PPP loan is forgiven, appropriate adjustments to the consultant accountant records become necessary to comply with (regulations.)”

According to the Federal Highway Administration, the PPP loan repayment requirement kicks in when one federal fund source is paying for a cost that is reimbursed by another federal fund source.


Tagged categories: Business management; Business matters; Business operations; COVID-19; Finance; Funding; Government; NA; North America; Program/Project Management; Small Business Administration

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