The Small Business Administration (SBA) recently published the borrower application to request loan forgiveness for a Paycheck Protection Program loan (PPP Loan). The form and instructions inform Borrowers how to apply for forgiveness of their PPP Loans, consistent with the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
Borrowers can apply for forgiveness at the conclusion of the eight-week covered period, which begins with the disbursement of their loans. Borrowers can find the PPP loan forgiveness application here and submit it to their Lender.
The SBA is expected to issue regulations and guidance to further assist Borrowers as they complete their applications, and to provide Lenders with guidance on their responsibilities. For now, the application provides Borrowers with expectations on how to calculate their PPP Loan forgiveness amount. Below are a few highlights from the application:
- Step-by-step instructions on how to perform the calculations required by the CARES Act to confirm eligibility for loan forgiveness.
- PPP loan forgiveness is calculated from Borrower’s use of the loan during the Covered Period. The Covered Period is the 8-week period starting the PPP Loan Disbursement Date, which is the date the Borrower received the loan proceeds from the Lender.
- For administrative convenience, 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 (the “Alternative Payroll Covered Period”). For example, if the Borrower received its PPP loan proceeds on Monday, April 20, and the first day of its first pay period following its PPP loan disbursement is Sunday, April 26, the first day of the Alternative Payroll Covered Period is April 26 and the last day of the Alternative Payroll Covered Period is Saturday, June 20. Borrowers who elect to use the Alternative Payroll Covered Period must apply the Alternative Payroll Covered Period wherever there is a reference in this application to “the Covered Period or the Alternative Payroll Covered Period.” However, Borrowers must apply the Covered Period (not the Alternative Payroll Covered Period) wherever there is a reference in this application to “the Covered Period” only.
- Borrowers must disclose if they have received a PPP Loan in excess of $2 million. As noted in earlier guidance, the SBA will conduct an audit of Borrowers who received a PPP Loan in excess of $2 million to ensure the Borrower in good faith made the certification that “[c]urrent economic uncertainty makes th[e] loan request necessary to support the ongoing operations of the Applicant . . . . taking into account [the Borrower’s] current business activity and ability to access other sources of liquidity sufficient to support [the Borrower’s] ongoing operations in a manner that is not significantly detrimental to the business.”
- Borrowers must certify that:
- The amount of forgiveness sought was used to pay eligible payroll costs and eligible nonpayroll costs (including, business mortgage interest payments; business rent or lease payments; or business utility payments) and only 25% of the amount requested was used for nonpayroll costs;
- That the amount requested does not exceed eight weeks’ worth of 2019 compensation for an owner-employee or self-employed individual/general partner, capped at $15,385 per individual;
- That the amount requested includes applicable reductions due to decreases in the number of full-time equivalent employees (FTE) and salary/wage reductions.
- Full-time equivalent refers to employees working at least 40 hours or a group of employees accumulating 40 hours. The guidance creates a simplified method to accumulate FTEs: each employee working at least 40 hours shall be counted as 1 FTE, and those working under 40 hours counted as 0.5 FTE.
- The application provides a safe harbor for FTE employee reduction: Specifically, the Borrower is exempt from the reduction in loan forgiveness based on FTE if both of the following conditions are met: (1) the Borrower reduced its FTE employee levels in the period beginning February 15, 2020, and ending April 26, 2020; and (2) the Borrower then restored its FTE employee levels by not later than June 30, 2020 to its FTE employee levels in the Borrower’s pay period that included February 15, 2020.
- Borrowers should note that the SBA added an additional exemption to a reduction in FTE employees to Borrowers who have made a good-faith, written offer to rehire workers that was declined.
- The application requires a Borrower to submit detailed documentation to support their loan forgiveness application and requires retention of that documentation for six years from when the loan is forgiven or repaid in full.
Borrowers should review the application carefully and contact their attorney or accountant for review before submitting it to their Lender.