On Friday, May 15, the Small Business Administration (SBA), in consultation with the Department of the Treasury, released the Paycheck Protection Program (PPP) Loan Forgiveness Application and detailed instructions for the application. If you have questions about completing the loan forgiveness application, please contact Johnson & Bell Shareholder, Mark D. Belongia.
The form and instructions inform borrowers how to apply for forgiveness of their PPP loans, consistent with the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). SBA will also soon issue regulations and guidance to further assist borrowers as they complete their applications, and to provide lenders with guidance on their responsibilities.
The application walks borrowers step-by-step through the process of calculating forgiveness and includes worksheets and tables that borrowers must complete, including a list of all employees and their cash compensation during the eight weeks after receipt of the loan. The application is meant to be “borrower-friendly,” with the addition of aligning the eight-week period to payroll cycles, including expenses paid or incurred during the eight weeks, and creating the “FTE Safe Harbor” for rehiring employees.
The application materials also include the first guidance on how employers should handle voluntary resignations, firings for cause and requests for reduced hours in light of the forgiveness depending on maintaining employee headcount.
While not official guidance or rules relating to PPP forgiveness it provides helpful information for borrowers trying to get their arms around what the forgiveness process will look like under the program. Official guidance/rules relating to PPP forgiveness should be available soon.
The application contains four parts, of which only the first two will be required to be submitted to the lender (or, if the loan was sold in the secondary market, to the lender servicing the loan):
- The PPP Loan Forgiveness Calculation Form;
- PPP Schedule A;
- The PPP Schedule A Worksheet; and
- The optional PPP Borrower Demographic Information Form.
The lender may elect to provide the application form to borrowers electronically.
PPP LOAN FORGIVENESS CALCULATION FORM
This form requires disclosure of identifying information about the borrower and the loan, any Economic Injury Disaster Loan (EIDL) Advances and EIDL applications on the part of the borrower, the frequency of the borrower’s payroll schedule, the “covered period” (the eight-week period following loan disbursement) or whether an “Alternative Payroll Covered Period” applies, and whether the borrower’s PPP loan principal amount was greater than $2 million.
The application also requires disclosure of quantitative information to calculate the forgiveness amount and requires the borrower to make certain certifications, including with regard to the accuracy of information supplied in the application and supporting documentation.
Aligning Eight Week Forgiveness Window to Payroll Schedule: The application introduces a new concept of an “Alternative Payroll Covered Period” for borrowers with a biweekly or more frequent payroll schedule. Borrowers who elect to use the Alternative Payroll Covered Period can calculate eligible payroll costs using the eight-week period that begins on the day following the borrower’s first pay period after their disbursement date. This alleviates a pain point for many borrowers whose payroll schedule did not align with the date of receipt of their PPP loan money.
Timing of Eligible Payments: The application clarifies that “payroll costs” are considered incurred on the day the employee’s pay is earned. However, if payroll costs are incurred but not paid during the last pay period of the relevant eight-week forgiveness window, they are nevertheless eligible for forgiveness if they are paid on or before the next regular payroll date. Otherwise, they must be paid during the covered period or Alternative Payroll Covered Period.
The same principle applies to nonpayroll costs, with it being permissible for such costs that are incurred during the covered period to be paid outside of the covered period so long as they are paid on or before the next regular billing date, even if it falls after the covered period.
PPP SCHEDULE A AND SCHEDULE A WORKSHEET
This form must be submitted to the lender or loan servicer and captures relevant quantitative information regarding cash compensation paid to employees, full-time equivalency (FTE) employee counts and payments of non-cash compensation. It refers to certain calculations by the borrower done in reliance on the PPP Schedule A Worksheet.
The worksheet is intended to help the borrower determine whether any forgiveness reductions apply and whether the FTE Reduction Safe Harbor applies (more on that below). It may be completed by the borrower or the borrower may obtain an equivalent report from its payroll system or payroll processor. It requires disclosure of employee names, the last four digits of employee’s social security number, the sum of cash compensation paid to those employees (capped at $15,385, reflecting $100,000 in annual compensation pro-rated over eight weeks), each employee’s full-time equivalency and any salary or hourly wage reduction greater than 25% for such employees.
FTE CALCULATIONS, REDUCTION EXCEPTIONS AND SAFE HARBOR
To calculate FTEs, the SBA is not using the generally recognized threshold of 30 hours per week being an FTE. For forgiveness calculations, borrowers will take the average number of hours paid per week, divide by 40 and round to the nearest .1, capped at 1.0. Alternatively, the borrower may assign a 1.0 for employees who work at least 40 hours per week and 0.5 for employees who work fewer hours. For purposes of the FTE count, borrowers will not be penalized for any employees to whom the borrower made a written offer to rehire that was rejected, that were fired for cause, voluntarily resigned or voluntarily requested and received a reduction of their hours. However these FTEs should not be disclosed if the former employee’s position was filled by a new employee.
Additionally, the application clarifies that the borrower is exempt from the reduction in loan forgiveness if both of the following conditions are met: (1) the borrower reduced its FTE employee levels between Feb. 15 and April 26, 2020; and (2) by June 30, 2020, the borrower restored its FTE employee levels to the same levels as in the pay period that included Feb. 15, 2020.
PPP BORROWER DEMOGRAPHIC INFORMATION FORM
This optional form asks for information about each borrower’s “Principals,” including certain owners, managers and other stakeholders of the borrower.