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SBA PPP Loan Forgiveness Application: Summary

Written by: Patrick C. Closson

5/18/2020

On May 15, 2020, the Small Business Administration released the Loan Forgiveness Application for the Paycheck Protection Program (the “Forgiveness Application”). 

The Forgiveness Application provides clarification to many of the open questions borrowers have raised regarding the forgiveness component of PPP loans.  Below is a summary of the key provisions from the Forgiveness Application.

In order to receive forgiveness, borrower must submit (1) a Forgiveness Application and (2) PPP Schedule A to the borrower’s lender.  The Forgiveness Application includes an Expiration Date of October 31, 2020.

The Forgiveness Application is comprised of four components:

(1) the PPP Loan Forgiveness Calculation Form;

(2) the PPP Schedule A;

(3) the PPP Schedule A Worksheet; and

(4) the (optional) PPP Borrower Demographic Information Form.

Covered Period and Alternative Payroll Covered Period:

The Forgiveness Application includes reference to the “Covered Period,” which is the eight-week (56-day) period starting on the date the loan proceeds were disbursed to the borrower.  With respect to the calculation of payroll, the Forgiveness Application also includes an “Alternative Payroll Covered Period,” which allows a borrower to apply an eight-week period  corresponding with the borrower’s payroll cycle.  The Forgiveness Application provides that borrowers with a biweekly (or more frequent) payroll schedule may elect to calculate eligible payroll costs using the eight-week (56-day) period that begins on the first day of their first pay period following their PPP loan disbursement date.

75% Payroll Test:

The Forgiveness Application confirms the 75% rule regarding use of the loan proceeds, and provides that 75% of the payroll applies to the maximum amount of forgiveness for which a borrower will be eligible.  The Forgiveness Application states that “eligible non-payroll costs cannot exceed 25% of the total forgiveness amount.”

Payroll Costs Paid and Payroll Costs Incurred Are Eligible for Forgiveness:

The Forgiveness Application clarifies that payroll costs paid and incurred during the eight-week (56-day) Covered Period (or Alternative Payroll Covered Period) are eligible for forgiveness. Payroll costs are considered paid on the day that paychecks are distributed or the borrower originates an ACH credit transaction. Payroll costs are considered incurred on the day that the employee’s pay is earned. Payroll costs incurred but not paid during the borrower’s last pay period of the Covered Period (or Alternative Payroll Covered Period) are eligible for forgiveness if paid on or before the next regular payroll date. Otherwise, payroll costs must be paid during the Covered Period (or Alternative Payroll Covered Period). For each individual employee, the total amount of cash compensation eligible for forgiveness may not exceed an annual salary of $100,000, as prorated for the covered period.

Nonpayroll Costs Eligible for Forgiveness:

The Forgiveness Application clarifies that payment of interest on business mortgages relating to real property or personal property, and rent or lease payments on real property or personal property in force before February 15, 2020, are eligible for forgiveness.  This clarification addresses questions that had arisen around the scope of the forgiveness associated with mortgages and leases.  The Forgiveness Application provides that like with payroll, the eligible non-payroll cost must be paid during the covered period or incurred during the covered period and paid on or before the next regular billing date, even if the billing date is after the covered period.  It should be noted that for non-payroll costs, the Forgiveness Application uses “covered period,” not the alternate period, which is discussed in the payroll section. 

Full-Time Equivalency:

The Forgiveness Application includes a calculation of full-time equivalency (“FTE”) during the Covered Period or the Alternative Payroll Covered Period. The Forgiveness Application provides that for each employee, enter the average number of hours paid per week, divide by 40, and round the total to the nearest tenth. The maximum for each employee is capped at 1.0. A simplified method is also included that assigns a 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work fewer hours may be used at the election of the borrower.  The application also sets forth the FTE reduction exceptions, and provides that the following reductions will not reduce the borrower’s loan forgiveness, (1) any positions for which the borrower made a good-faith, written offer to rehire an employee during the Covered Period or the Alternative Payroll Covered Period which was rejected by the employee; and (2) any employees who during the Covered Period or the Alternative Payroll Covered Period (a) were fired for cause, (b) voluntarily resigned, or (c) voluntarily requested and received a reduction of their hours.

Documentation:

The Loan Forgiveness Application includes a list of documents that each borrower must submit with the PPP Loan Forgiveness Application.

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