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Paycheck Protection Program (PPP): Loan Forgiveness Application

May 21, 2020


On Friday, May 15, 2020, the Small Business Administration (SBA) released, for the first time, the loan forgiveness application form which borrowers will use to request forgiveness. Included with the application are detailed instructions and supplemental schedules that borrowers will be obligated to create as part of the forgiveness process. Borrowers completing the application process and PPP lenders can expect to receive additional guidance from the SBA.

Click here for the full application and instructions.

To help you gauge how this latest guidance could impact your business, our team at Abdo, Eick and Meyers has summarized key provisions of the newly published application and instructions. Below, you’ll find highlights of the loan application and some clarification on areas that guidance was previously lacking. Nevertheless, questions about PPP loan forgiveness remain. To address these lingering concerns, we expect the SBA to issue additional rounds of guidance in the coming weeks. We will continue to monitor these developments and provide updates to our clients and community as appropriate.

Finally, key questions are answered…

Some of the most pressing questions about PPP forgiveness had to do with the definition of full-time equivalent (FTE), eligible non-payroll costs, and calculating payroll costs. The good news is, these—and other pressing questions—have finally been answered. Here’s a quick summary of the highlights.

Highlights of PPP Loan Forgiveness Guidance

To view a version of the application in which the items listed below are highlighted for your reference, click here.

Borrowers can calculate payroll costs using an “alternative payroll covered period.”

Under the new guidance, borrowers with a bi-weekly (or more frequent) payroll schedule may choose when their eight-week covered period begins. The start date could be either the date the proceeds were distributed to the borrower or the first day of the borrower’s first pay period following the PPP loan disbursement date.

Note: This alternative covered period does not apply to non-payroll costs such as interest, rent or utilities.

Borrowers have flexibility to include eligible costs incurred during covered period if they meet certain conditions.

Eligible payroll costs incurred but not paid during the borrower’s last pay period of the covered period (or alternative covered period) are eligible for forgiveness—as long as these costs are paid on or before the next regular payroll date. This rule is changed slightly when calculating eligible non-payroll costs. These costs must be paid during the covered period or incurred during the covered period and paid on or before the next regular billing date.

Additional examples of what is included as covered utility payments.

The instructions provide an expanded list of utility services which may be counted towards forgiveness. These include business payments for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access.

The definition of full-time equivalent (FTE) is 40 hours per week.

The SBA has clarified that an employee who works at least 40 hours (not 30 hours) per week counts as 1 FTE. Borrowers can determine their number of FTEs for forgiveness by dividing the average number of hours paid per week over the covered period by 40. A simplified method exists that allows borrowers to assign a 1 for employees who work 40 hours or more per week and 0.5 for employees who work fewer hours. However, this simplified method may result in a decrease to the borrower’s loan forgiveness amount due to a reduction in FTEs.

Borrowers who reduced their staff count may be eligible for a safe harbor.

A safe harbor will be allowed for borrowers to avoid the potential reduction in forgiveness due to a decrease in FTE over the covered period.

Borrowers must meet the following conditions to be eligible for the safe harbor:

  1. The borrower reduced FTE employee levels in the period beginning 2/15/2020 and ending 4/26/2020.
  2. The borrower then restored FTE employee levels by not later than 6/30/2020 to FTE employee levels in the borrower’s pay period that included 2/15/2020.

If the safe harbor is met, then a borrower’s forgiveness will not be reduced due to FTE count.

Borrowers may have leeway on certain FTE reductions.

In addition to the safe harbor, certain FTE reductions will not cause a borrower’s forgiveness to be reduced. Borrowers may exclude the FTE for any employee that, during the covered period or alternative covered period, meets either of the following cases:

  1. The borrower made a good-faith, written offer to rehire an employee and the employee rejected the offer, and
  2. Any employees who:
    1. Were fired for cause
    2. Voluntarily resigned
    3. Voluntarily requested and received a reduction of their hours

In all of these cases, this exclusion is applicable only if the position was not filled by a new employee.

Borrowers who reduced employees’ pay may receive less loan forgiveness.

Borrowers who reduced the salary or hourly wages of certain employees (those compensated at an annualized rate of less than $100,000 for all pay periods in 2019 or not employed at any point in 2019) by more than 25% (as compared to 1/1/2020–3/31/2020) during the covered period may see a reduction in their loan forgiveness amount.

Borrowers may be able to avoid having their forgiveness reduced due to decreased pay if they can qualify for the salary/hourly wage reduction safe harbor.

Borrowers must meet the following conditions to be eligible for the safe harbor:

  1. The borrower decreased certain employees’ (those making less than $100,000 in 2019) salary/hourly wage level in the period beginning 2/15/2020 and ending 4/26/2020.
  2. As of 6/30/2020, the borrower restores those employees’ salary/hourly wage level to what it was as of 2/15/2020.

If the safe harbor is met, then a borrower’s forgiveness will not be reduced due to decreased salary or hourly wages.

Owner compensation is capped during the covered period.

The SBA has made it clear that owners—which it defines as owner-employees, self-employed individuals, and general partners—are limited to $15,385 for each individual or the eight-week equivalent of their applicable compensation in 2019, whichever amount is lower. This begs the question: Are owners of S-Corporations or C-Corporations paid through a W-2 unable to increase their compensation compared to 2019 during the covered period to maximize forgiveness?

Clarification on supporting documentation requirements.

The instructions for the application provides a detailed listing of what supporting documentation will be required to verify payroll costs, non-payroll costs and FTE counts.

Stay tuned.

As previously mentioned, we expect to hear more from the SBA on the issue of loan forgiveness, and it’s likely more questions will arise in the meantime. We’re watching this situation closely and will provide updates when we know more. If you have questions or concerns about your PPP loan forgiveness eligibility or application, contact us today.

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