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SBA Gives Guidance in its Much Anticipated PPP Loan Forgiveness Application


Last Friday afternoon, the Small Business Administration (SBA) quietly released the long-awaited PPP Loan Forgiveness Application, an 11-page official document with instructions and supporting schedules that must be used by borrowers to request loan forgiveness from their Paycheck Protection Program (PPP) lender. The application provides guidance on many of the questions but leaves several questions without answers. The SBA stated that further guidance will be forthcoming. The current application can be found here.

Here are some of the highlights and analysis:

  • The application allows you to check a box that corresponds to your company’s regular payroll schedule. This is then used to determine when payroll is paid or incurred and thus eligible for forgiveness. This also drives the computation of FTE employees when evaluating reductions in the forgiveness amount.
  • The 8-week forgiveness period begins on the first day you received your PPP funding and ends 56 calendar days later. This is what is now referred to as your “Covered Period.”
  • The SBA recognizes that payroll periods will generally not coincide with your Covered Period. For this reason, it will allow payroll incurred during your 56-day Covered Period to be eligible for forgiveness even if paid after the 56-day Covered Period, as long as it is paid on or before your next regular payroll date after your Covered Period ends. Payroll costs are considered incurred on the day the employee’s pay is earned. This helps clarify the “incurred and paid” question that many borrowers have had.
  • The SBA has also created an elected option allowing your “Covered Period” to be adjusted for payroll costs to the “Alternative Payroll Covered Period.” If elected, those with bi-weekly payroll or more frequent payroll may segregate payroll costs into a separate 8-week (56-day) Alternative Payroll Covered Period, which begins on the first day of your first payroll period following the date you received your PPP loan funding. If elected, this will perhaps better match payroll to a 56-day period.
  • The most any single employee’s wages can count towards loan forgiveness is $15,384 for the Covered Period which is simply $100,000 divided by 52 weeks times 8 weeks.
  • Compensation to owners appears to be limited to the lower of the 8 week equivalent amount during the Covered Period or the 8 week equivalent for 2019. This prevents an owner from increasing their compensation during the Covered Period to maximize the forgiveness by limiting the amount includable in the forgivable amount to 8/52 of the owner’s compensation for 2019.
  • The application does not appear to allow for retirement, health and other benefits for owners, partners and self-employed individuals to be included in the forgiveness calculation. Hopefully there will be additional guidance on this point as this is a large cost in many multi-owner companies.  We believe this was not the intent of the CARES Act.
  • One of the big questions relates to 2019 retirement plan contributions made during your Covered Period. This application provides no clarity on that issue and until we receive specific guidance, we advise you include those plan contributions in your forgiveness calculation.
  • You will not be penalized in your FTE calculations for employees to whom you made a good-faith offer to rehire, were terminated for cause or who resigned, and those positions are not yet filled by a new employee. You will also not be penalized if an employee voluntarily requests to have their hours reduced.
  • Just as payroll costs incurred during your Covered Period can be paid after your Covered Period, so can eligible non-payroll costs (rent, interest, utilities). However, to be considered an eligible cost for loan forgiveness, the costs must be paid before their next regular billing date.
  • Utilities paid during the Covered Period is defined as payment for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020. However, there continues to be no specific guidance on what type of services or transportation costs would be considered as an allowable utility cost. Cell phones?
  • Interest must be on a mortgage obligation incurred in the ordinary course of business that is a liability of the borrower, is a mortgage on real or personal property, and was in place before Feb.15, 2020.
  • There is now an explicit statement that covered rent obligations include leases on both real and personal property.
  • The SBA application utilizes a different ordering methodology for the FTE adjustment and Salary/Hourly wage reductions than was expected as proffered by many authors.  This results in a more generous loan forgiveness calculation.
  • The look-back to 2019 limiting compensation of owners only, indirectly may suggest that a bonus is acceptable to be paid to other employees subject to the $100,000 or $15,384 eight week cap.
  • There is no mention of whether any sort of related party attribution rules apply with respect to the $100,000 or $15,384 eight week cap for children or spouses of an owner.
  • The SBA application appears to deviate from a previous Interim Final Rule by limiting PPP loan forgiveness to principal only and not accrued but unpaid interest on the PPP loan.

Ultimately, we expect further guidance to be released to address questions that have arisen in the forgiveness process that are not answered on this application. The Treasury has been addressing these questions throughout the loan process via the release of FAQs and Interim Final Rules.

The American Institute of Certified Public Accountants has made available a PPP loan forgiveness calculator in an excel format that is a good tool and can be accessed on their website or reach out to your BP representative for guidance.

As always, to aid in the forgiveness process, continue to maintain excellent documentation on the use of PPP funds (see prior BP Blast on this topic here). Expect to retain this documentation up to six years, according to the application instructions, in the event of future governmental review on these loans.

The BP team will continue and provide updates as information is released with respect to PPP loan forgiveness.  Berntson Porter is here to help you navigate these unprecedented times. Visit our online Resource Center for up-to-date information about COVID-19 legislation that impacts you and your business.


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