On Friday, May 15, 2020, the Small Business Administration (SBA) published its application for forgiveness of Paycheck Protection Program (PPP) loans issued pursuant to the CARES Act. The application, together with instructions, is 11 pages long.

Unfortunately, many borrowers are already half-way through their 8-week “covered period,” and could have used the information from the SBA more effectively had it come earlier and with less confusing and ambiguous explanations.

Note that this is in all likelihood not the last guidance the SBA will issue on PPP loan forgiveness – so we cannot treat this as the final word.

However, it is what we have, and we recommend that borrowers get started with their preliminary calculations now.

We cannot recommend too strongly that if you are at all uncertain about the PPP Loan Forgiveness Application, you seek guidance from your advisor.

PPP Loan amounts spent on “covered” expenses during a period following receipt of the funds can considered “forgivable,” if the SBA guidance is specially followed. There is some flexibility in what constitutes the 8-week period (56 day), particularly for businesses which issue payroll more than bi-weekly, they may start their 8-week period beginning on the date of their first payroll following receipt of loan proceeds; in addition, some expenses incurred before the 8-week period may be deductible if they are paid during that period, as well as some expenses incurred during the 8-week period but paid afterward.

Per the PPP Loan Forgiveness Application, the maximum allowable amount to be forgiven is the principal amount of the loan, not including any accrued unpaid interest. This is in line with the wording of the CARES Act, but is contrary to a previous Interim Final Rule.

Please note that while the language of the CARES Act generally defines a full-time employee as one working 30 hours or more per week, the SBA loan forgiveness calculations are based upon a 40-hour work week.

While borrowers are expected to maintain full-time equivalent employment at 75% of pre-COVID levels or better, if an employee has left, either voluntarily or by request, and refuses a good faith written offer to re-hire, this reduction will not be counted against a borrower’s loan forgiveness. Wage and salary levels must also be maintained at 75% or greater than pre-COVID.

Lenders are required to issue a decision on loan forgiveness applications within 60 days of receipt.

To view the PPP Loan Forgiveness Application and instructions, please click here.

It must be said that the application for loan forgiveness (particularly the supporting schedules and related calculations) make the initial PPP Loan Application look simplistic, which of course it is not, but, remember, this is the federal government. You want to make sure you get this right before submitting this form to your lending institution.

We recommend that you track your covered expenses and time periods meticulously, and that you gather and maintain documentation verifying the number of full-time equivalent employees and their pay rates (there are several dates for which this one task must be performed), as well as your payments of eligible payroll costs, eligible mortgage and interest payments, rent, and utilities.

Stay tuned for further developments, which will be coming!

If you have questions on the PPP, please click here to email us directly – we are here to help.

Until next Wednesday –

Peace,

Eric