The Small Business Administration (SBA) has released the Payment Protection Program (PPP) loan forgiveness application, which can be found HERE. The application and instructions confirm that if a borrower used at least 75% of the loan proceeds on eligible payroll costs, no more than 25% on eligible non-payroll costs, and maintained staffing and salary levels, the PPP loan may be forgiven in full. The application further confirms the forgiveness amount will be reduced correspondingly by a failure to follow these requirements.
The application and instructions provide step-by-step directions for borrowers to calculate their eligible forgiveness amounts. Additionally, they provide new guidance and points of clarification, including:
– Borrowers may now elect to utilize the Covered Period or an Alternative Payroll Covered Period that aligns with borrowers’ regular payroll cycles to determine the eight-week period during which loan proceeds must be spent in order to qualify for forgiveness. Borrowers who use a biweekly payroll schedule, or a more frequent schedule, may choose to have the eight-week period begin on the first day of its first pay period following loan disbursement, rather than on the date of disbursement.
– Payroll costs that are incurred, but not yet paid, during the eight-week period (capped at $15,385 per employee reflecting the PPP’s $100,000 annual salary limitation) will be eligible for forgiveness if paid on or before the next regular payroll date.
– Compensation paid to owners, such as owner-employees, self-employed individuals, or general partners, are separately categorized and calculated (also capped at $15,385 per individual), but are included in payroll costs for forgiveness purposes.
– There is no penalty for a reduction in staffing if the borrower made a good-faith, written offer to rehire the employee during the eight-week period which was rejected by employee, or if the employee was fired for cause, voluntarily resigned, or voluntarily requested a reduction of hours.
– Full time equivalent (FTE) employee calculation, including the treatment of any employee who works under 40 hours per week and a simplified alternative calculation.
– Confirming the June 30, 2020, deadline to restore FTE headcounts and salary/hourly wage reduction, even if that date is outside of the borrower’s eight-week forgiveness period.
– Borrowers are required to indicate whether they received a loan in excess of $2 million. This corresponds with the SBA’s prior announcement that it would audit loans over $2 million to ensure that the borrower properly certified in good faith that, given current economic conditions, the loan was necessary to support ongoing operations. The SBA is providing an automatic safe harbor to borrowers receiving PPP loans with an original principal amount of less than $2 million. These borrowers will be deemed to have made the required certification concerning the necessity of the loan request in good faith.
– Borrowers are required to maintain all documentation related to the PPP loan for six years after the loan is forgiven or repaid in full and allow the SBA to access such files upon request.
According to the press release announcing the forgiveness application, the SBA will release additional regulations and guidance to further assist borrowers as they complete their applications, and to provide lenders with guidance on their responsibilities. When the guidance and regulations are released, we will provide our staff recommendations based on such.
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