On May 15, 2020 the Small Business Association (SBA) and U.S. Treasury published an Application for Loan Forgiveness for the Paycheck Protection Program (PPP), including instructions.  While the application answers many questions, it also raises new questions and leaves some questions unanswered.  In a press release issued by the Treasury, they indicate that the SBA would “soon issue regulations and guidance to further assist borrowers as they complete their applications, and to provide lenders with guidance on their responsibilities.”  In the interim, below is a summary of some of the key points from the application and instructions:

  • The eight week “Covered Period” clearly begins on the date the funds were disbursed to the borrower.  However, for payroll costs, borrowers who use a bi-weekly (or more frequent) payroll may use an alternative eight week Covered Period that begins on the first day of the borrower’s first payroll following its loan disbursement date.
  • Payroll costs are considered paid on the day the paychecks are distributed, or an ACH is originated.
  • Payroll costs are considered incurred on the day the employee’s pay is earned.  Accordingly, payroll costs incurred but not paid during the borrower’s last pay period of the Covered Period are eligible for forgiveness if paid on or before the next regular payroll date.  No special payrolls required.
  • Owner-employee payroll is limited to 2019 payroll, capped at $100,000, so no bonuses or raises to bring owners up to the cap.
  • Full-time equivalents (FTEs) are based on a 40 hour work week.  When comparing FTEs, fractions are included and the borrower can elect to use .5 for any employee that is considered less than full-time.  Employees who work more than 40 hours are only counted as one FTE.
  • FTEs are not reduced for employees who refuse a written offer to come back to work, employees who were terminated for cause, or employees who left on their own, or retired.
  • Safe harbors are provided for FTE reductions in certain cases where FTEs are restored to the same level as February 15, 2020 and the reductions were made between February 15, 2020 and April 26, 2020.
  • Non-payroll costs incurred during the Covered Period are considered paid as long as they are paid on or before the next billing date, even if paid after the end of the Covered Period.
  • Prepayments of non-payroll expenses are expressly not included for forgiveness.
  • Covered rent obligations include business rent or lease payments pursuant to lease agreements for real or personal property in force before February 15, 2020.
  • A salary reduction in excess of 25% during the covered period will be ignored relative to the first quarter of 2020 but only if that salary is restored to what it was on February 15, 2020, by June 30, 2020.

Click here for the Paycheck Protection Program Loan Forgiveness Application