PPP Forgiveness Application & New Rules: What You Need To Know

May 18, 2020 | admin

Stuart McCallum's portrait

Stuart McCallum, ASA

Jon Paul Davis's portrait

Jon Paul Davis, CPA, CGMA, MBA

The Small Business Administration (SBA) released an application on May 15, 2020 for borrowers of a Paycheck Protection Program (PPP) loan to use to determine the amount of their loan that may be forgiven. They also released additional forgiveness guidance. We will outline the most salient points below.

June 30 Safe Harbor

The application and its instructions confirms the June 30 safe harbor outlined in the original CARES Act, penalties for reduced FTEs (full-time equivalent) employee headcounts and pay rate reductions in excess of 25% for those earning less than $100,000 during the 8-week period are disregarded if by no later than June 30, 2020, the borrower restores its FTE employee level and compensation levels to the levels that existed on February 15, 2020.

FTE Clarification

The application released on Friday, May 15, 2020 clarifies that the SBA will be computing FTE based on 40 hours, not 30 hours which many advisors have been suggesting based upon the definition in other federal programs (including the SBA). The crucial guidance may come too late for many companies that received their funds nearly six weeks ago and already made staffing decisions based upon the 30 hour assumption. This could make the June 30 FTE Reduction Safe Harbor date all the more important.

Additionally, the guidance creates a simplified method to accumulate FTEs. Each employee working at least 40 hours will be counted as one (1) FTE, and those working under 40 hours counted as 0.5 FTE. Borrowers may elect to use the actual FTE computation or the simplified method.

Forgivable Costs

The guidance confirms four categories of costs that may be eligible for forgiveness:

  • Payroll costs;
  • Business mortgage interest payments;
  • Business rent or lease payments; and
  • Business utility payments.  

Covered Period & Alternative Payroll Covered Period

The guidance also states that, besides a few exceptions, the costs paid for the above listed items during the borrower’s Covered Period, which is the eight-week period that begins on the date the PPP loan was disbursed, are generally forgivable. Borrowers may elect an Alternative Payroll Covered Period, which allows for the eight -week period to begin on the first pay period following the date of the PPP loan disbursement.

Eligible payroll costs include those paid during the Covered Period or the Alternative Payroll Covered Period  and those incurred during those same periods. Incurred is considered based on the day the employee’s payroll is earned. Payroll costs incurred but not paid during the Covered Period or the Alternative Payroll Covered Period are eligible if paid on or before the next regular payroll date.

Similarly, eligible nonpayroll costs could also include costs incurred during the Covered Period and paid on or before the next regular billing date, even if after the end of the Covered Period. However, the Alternative Payroll Covered Period is not available for nonpayroll costs when considering when these are paid or incurred.

Loans over $2 million

Borrowers with a total PPP loan amount of more than $2 million will be subject to an SBA audit.

Borrowers should seek legal guidance with respect to the affiliation rules as they remain unclear at this time. For affiliates that, in total, received loans exceeding $2 million, it may be advisable that they prepare for an audit regardless.

Loans under $2 million

Recent guidance from the Treasury indicates that borrowers (and their affiliates) with total PPP loan amounts of less than $2 million will be assumed to be in compliance with the certification of financial need.

The Application

The application has four parts:

  1. The PPP Loan Forgiveness Calculation Form;
  2. PPP Schedule A;
  3. The PPP Schedule A Worksheet; and
  4. An optional PPP Borrower Demographic Information Form.  

Borrowers are required to submit items (1) and (2) to their lender.

More information to come

The SBA may issue additional regulations and guidance to assist borrowers as they complete their applications.

You can find more information and the application here.