Paycheck Protection Program Loan Forgiveness Update 5/20/20

Loan Forgiveness Application for the Paycheck Protection Program Now Online

The Small Business Administration (SBA) has released the long awaited PPP Loan Forgiveness Application. Listed below are the major features of the application:

1. For the calculation of payroll costs, the borrower is allowed to use the 8-week period following the receipt of the first loan proceeds or use an ‘alternative payroll covered period’. The previously issued regulations indicated the covered period had to begin on the date of which the loan proceeds are disbursed. This alternative period can be used for borrowers with a bi-weekly (or more frequent) payroll cycle. The alternative period commences on day 1 of the borrower’s first pay period following receipt of the first loan proceeds and ends 8 weeks (or 56 days) thereafter.

2.The application contains step-by-step instructions on how to perform the calculations required by the CARES Act including the following computations: 1) report eligible employee compensation for each employee; 2) limit employee compensation to a maximum annual amount of $100,000 (capped at $15,385 for eight weeks); 3) report the number of Full Time Equivalent (FTE) employees for the covered period; and 4) determine if there was a reduction of FTE’s during the covered period. Note that the actual loan forgiveness amount that you are eligible for may be reduced if your average weekly FTE employees during the covered period is less than during the chosen reference period. You will be exempt from such a reduction if the FTE Reduction Safe Harbor applies. Refer to PPP Schedule A Worksheet—FTE Reduction Safe Harbor.

3. For eligible non-payroll expenses such as interest, rent, and utilities, these costs must be paid or incurred during the 8 week covered period and paid on or before the next regular billing date (even if the billing dates falls after the covered period).

4. The application clarifies the 75% payroll expense rule. The borrower can calculate their total payroll costs of wages, health insurance and retirement plan expenses but the sum of other forgivable expenses (utilities, mortgage interest and rent) is limited to 1/3 of payroll costs. For example, if your organization received a loan in the amount of $100,000 and has $65,000 in payroll costs in the 8-week period, you can only count $21,666 of other allowable costs in your forgiveness calculation, so $86,666 of the $100,000 loan would be eligible for forgiveness.

5. Lastly FAQ #40, offers the addition of a new exemption from loan forgiveness reduction for borrowers who have made good-faith, written offers to rehire their workers and the offers were subsequently declined by June 30th.

Although according to the SBA, the forgiveness application is intended to ‘reduce compliance burdens and simplify the process for borrowers’, SBA will be issuing further FAQ’s. This is a link to the most recent FAQ, which is being updated frequently. We will continue to provide updates through our blog. As we know this is a complicated process, so please contact us if you have any questions in preparing your loan forgiveness application.