SBA releases PPP loan forgiveness application and instructions

Here’s a helpful memo from the National Retail Federation about the just-released PPP loan forgiveness application from the Small Business Administration:

The SBA released a standardized PPP loan forgiveness application with instructions.

You can find the form here.

The SBA still intends to publish additional rules and guidance on the program’s forgiveness provisions, but highlights from last night’s release – and answers to a few outstanding questions – include:

  • Retains the “75% on payroll costs” requirement (caps nonpayroll costs at 25% of total forgiveness amount)
  • Eligibility for loan forgiveness will be assessed based on rules/guidance in place on the date of your forgiveness application (so important to stay on top of and in compliance with rolling guidance!)
  • Required representations and certifications are not especially notable, but you must agree that SBA may request additional information to evaluate a borrower’s initial eligibility for the loan and for loan forgiveness and failure to comply may result in a determination that the borrower was ineligible for the loan or forgiveness.
  • Some flexibility in the 8-week (56 day) forgiveness “Covered Period” for payroll cost, full-time equivalent employee, and employee salary reduction determinations only – specifically, borrowers with a biweekly (or more frequent) payroll schedule may elect to calculate forgivable payroll costs using the 8 weeks beginning on the first day of the first pay period following the loan disbursement date (the “Alternative Payroll Covered Period”)
  • There is a specific box on the application indicating that a borrower, together with its affiliates, received a loan with an original principal amount over $2 million (but clarifies that you do NOT include affiliates for purposes of this determination if you have an affiliation rule waiver under SBA rules or the CARES Act).  This likely is to flag loans that will receive additional scrutiny from SBA.
  • Some additional detail on eligible forgiveness expenses and forgiveness amount calculation:

o   Eligible payroll costs:

  • Eligible payroll costs must be incurred AND paid (paycheck distributed or ACH credit transaction originated) during the Covered or Alternative Payroll Period, except you may pay those incurred during the last pay period of the Covered/Alternative Period on or before the next regular payroll date and still get forgiveness.
  • Include employer contributions to employee health insurance, including self-insured plans; exclude any pre-tax or after tax contributions by employees (same for retirement plans)
  • Include amounts paid by the borrower for state and local taxes on employee compensation (e.g., state unemployment insurance tax); exclude any taxes withheld from employee earnings
  • For amounts paid to owner-employees, self-employed individuals, or general partners = lower of $15,385 or “eight-week equivalent of their applicable compensation in 2019” (this appears to refer back to 8 weeks’ worth of 2019 net profit from Form 1040 Schedule C, but that is not spelled out clearly).

o   For other forgivable expenses (mortgage interest, rent, and utilities), they may be forgiven if they are incurred during the Covered Period (no alternative period) and are paid during the Covered Period OR on or before the next regular billing date

o   Total amount calculation — your forgiveness amount with be the smallest of:

  • Your original PPP loan amount (no reference to interest — consistent with the CARES Act, which caps forgiveness at the principal amount);
  • Total forgivable expenses, minus straight dollar reduction for any 25%+ wage reduction penalties, times percentage of full-time equivalent employees during Covered/Alternative Period compared to pre-crisis look back period (maximum of 1); or
  • Total eligible payroll costs (reported on line 1 of the application) divided by 0.75.
  • 2 permissible methods for calculating full-time equivalent employees (FTEs) (then compare averages between Covered or Alternative Payroll Period and chosen look-back option specified in the rules) =

o   For each employee, average number of hours paid per week, divide by 40 (round to nearest tenth); maximum for each employee = 1; or

o   Simplified method: assign a “1” for any employee who works 40 hours or more per week and “0.5” for employees who work fewer than 40 hours

  • Contains the “exception” from the FTE reduction penalty for employers who made good-faith written offers to rehire employees during the Covered or Alternative Payroll Period, which were rejected by employees; also excludes from the FTE reduction penalty employees who, during the Covered or Alternative Period were fired for cause, voluntarily resigned, or voluntarily requested a reduction in hours (IF those positions were not filled by new employees) – for each of these situations, you enter the FTE number for that position as if the person were still there so your forgiveness amount is not reduced for these positions
  • Documents that must be SUBMITTED with the application are consistent with what is listed in the CARES Act (generally – payroll, employment records showing FTEs, documentation of forgivable expenses); also adds new requirements for documents that must be maintained by borrowers, but don’t have to be submitted