SBA Issues PPP Loan Forgiveness Form
The SBA has issued the Paycheck Protection Program Loan Forgiveness Application. The application has four components: (1) the PPP Loan Forgiveness Calculation Form; (2) PPP Schedule A; (3) the PPP Schedule A Worksheet; and (4) the optional PPP Borrower Demographic Information Form.
Aside from setting forth the forms that a borrower must complete to obtain forgiveness, the forms and instructions detail the supporting documentation that a borrower must compile and also clarify some outstanding issues regarding forgiveness. Summarized below are several issues that the Loan Forgiveness Form provides new or updated guidance on.
Election for Alternative Payroll Covered Period
The CARES Act and prior guidance provided that the covered period during which a borrower accrues forgivable expenses was the eight-week period from first disbursement of the loan from the lender to borrower. Borrowers may still use the covered period provided for in the CARES Act and prior guidance.
However, the Loan Forgiveness Form also permits borrowers with a biweekly (or more frequent) payroll schedule to use an Alternative Payroll Covered Period, consisting of the eight-week period beginning on the first day of the first pay period following PPP loan disbursement from the lender to the borrower. This election only applies to payroll costs.
Paid or Incurred
The CARES Act states that forgivable expenses include “costs incurred and payments made during the covered period[.]” This ambiguous language caused much confusion. The Loan Forgiveness Form has provided some clarification.
Forgivable payroll costs include payroll costs paid and payroll costs incurred during the covered period (or Alternative Payroll Covered Period). Payroll costs are considered paid on the day paychecks are distributed or the ACH credit transaction is originated. Payroll costs are incurred on the day the employee’s pay is earned. Payroll costs incurred but not paid during the Borrower’s last pay period of the covered period (or Alternative Payroll Covered Period) are eligible for forgiveness if paid on or before the next regular payroll date. Otherwise, payroll costs must be paid during the Covered Period (or Alternative Payroll Covered Period). Payroll costs that were incurred and paid during the relevant period can only be counted once.
Similarly, eligible nonpayroll costs (utilities, mortgage interest, rent or lease payments) paid during the covered period or incurred during the covered period and paid on or before the next regular billing date, even if the billing date is after the covered period, are eligible for forgiveness.
Borrowers must calculate full-time equivalent employees for purposes of determining whether there will be a reduction to loan forgiveness. Borrowers can elect one of the following two methods to calculate FTE employees.
First, the borrower can enter the average number of hours paid per week, divide by 40, and round the total to the nearest tenth. The maximum for each employee is capped at 1.0.
Alternatively, a borrower may use a simplified method that assigns a 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work fewer hours.
FTE Reduction Exceptions
Previous guidance indicated that if a borrower made a good faith written offer to rehire an employee upon the same terms and conditions, and the employee rejected that offer, that the borrower’s forgiveness amount would not be reduced. The Loan Forgiveness Form additionally provides that any employees who were fired for cause, voluntarily resigned, or voluntarily requested and received a reduction in hours, will not count against a borrower’s loan forgiveness.
All borrowers should carefully review the entirety of the Loan Forgiveness Form, linked above, and compile all necessary documents to support the forgiveness request. If you have any questions about the Loan Application Form or other PPP forgiveness issues, please contact a MacDonald Illig attorney to assist you.