SBA issues long-awaited PPP loan forgiveness application and instructions.
Key insights
- The SBA issued a multi-part PPP loan forgiveness application on the evening of May 15, 2020.
- The application (including instructions and worksheets) provides directions for calculating forgiveness requests.
- As guidance continues to be released, we’ll share updates.
On the evening of May 15, 2020, the SBA issued the long-awaited loan forgiveness application for the Paycheck Protection Program (PPP). Borrowers must complete the multi-part application, as directed in the instructions, and submit it to their lender (or the lender that is servicing their loan). Access the application (including instructions).
Highlights of the application include:
- An authorized representative of the borrower must certify that, among other things, the dollar amount for which forgiveness is requested “was used to pay costs that are eligible for forgiveness (payroll costs to retain employees; business mortgage interest payments; business rent or lease payments; or business utility payments).” What amounts qualify as “payroll costs to retain employees” will likely be a hot topic for future guidance, particularly for those businesses that did not see a significant decline in revenues during the covered period.
- Borrowers are permitted to use an “alternative payroll covered period” that corresponds to the first day of the first pay period following a borrower’s PPP loan disbursement.
- Although payroll costs generally must be incurred and paid during the eight-week covered period to be subject to forgiveness, payroll costs incurred but not paid during a borrower’s last payroll cycle of the covered period may be included in the amount to be forgiven if they are paid before the next regular payroll date.
- No prepayments are allowed — forgivable costs should equate to eight weeks’ worth of payroll and permitted nonpayroll costs.
- The limitation on forgivable cash compensation appears to be measured over the entire eight-week covered period, rather than for each separate pay period. This limitation is $15,385 per individual, based on the $100,000 annualized cap.
- The forgiveness limitation requiring 75% of PPP loan proceeds to be used on payroll is measured based on gross payroll costs incurred during the eight-week covered period, not on an amount reduced by the separate employee retention and salary/wage reduction calculations.
- For the employee retention test, borrowers may choose to calculate average full-time equivalency (FTE) by counting one FTE for each employee that works at least 40 hours a week and 0.5 FTE for each employee that works less than 40 hours a week, rather than using the more detailed method of calculating FTE for part-time employees.
- A borrower’s loan forgiveness will not be reduced by FTE reductions that fall within one of the following exceptions: (1) employees who rejected rehire attempts; and (2) employees who were fired for cause, who voluntarily resigned, or who voluntarily requested and received a reduction in hours.
- The wage reduction test for hourly employees is measured at the pay rate level (i.e., hourly wage) rather than the aggregate pay level.
Would you like to talk with an advisor?
Further updates will be available on the forgiveness guidance. In the meantime, we suggest that you carefully review the application and instructions.
How we can help
Contact us with any questions you have on the loan forgiveness application. CLA’s COVID response team is updating our forgiveness tool in light of the recent guidance and will continue to monitor SBA guidance to bring you the latest interpretations on this topic.