SBA Releases Paycheck Protection Program Loan Forgiveness Application, Detailed Instructions, and Guidance

May 2020

Late on Friday, May 15, 2020, more than two weeks after the Coronavirus Aid, Relief, and Economic Security (CARES Act) deadline passed, the U.S. Small Business Administration (SBA) and the U.S. Department of Treasury released the Paycheck Protection Program (PPP) loan forgiveness application along with detailed instructions and guidance. The loan forgiveness application can be found here.

The eleven-page PPP loan forgiveness application provides a step-by-step guideline of how to complete the loan forgiveness application, and each PPP loan borrower will need to submit the application to its lender. The application consists of the following components:

  1. PPP Loan Forgiveness Calculation Form;
  2. PPP Schedule A;
  3. PPP Schedule A Worksheet; and
  4. PPP Borrower Demographic Information Form (optional)

All borrowers must submit the PPP Loan Forgiveness Calculation Form and the PPP Schedule A along with the list of documents that each borrower must submit with its application to their lender. The application itself mirrors what was provided in the CARES Act, but it also provides important additional guidance and a few deviations from the existing rules and requirements.

First, the PPP loan forgiveness application provides an option for borrowers to calculate payroll costs using an Alternative Payroll Covered Period that aligns with borrowers’ regular payroll cycles. Specifically, borrowers with a biweekly (or more frequent) payroll schedule may elect to calculate eligible payroll costs use the 8-week (56-day) period beginning on the first day of their first pay period following their PPP loan funding date. For example, if the borrower received its PPP loan proceeds on Monday, April 20, 2020, and the first day of its first pay period following its PPP loan disbursement is Sunday, April 26, 2020, then the first day of the borrower’s Alternative Payroll Covered Period is April 26, 2020, and the last day of the Alternative Payroll Covered Period is Saturday, June 20, 2020.

In the event a borrower does not want to use the Alternative Payroll Covered Period, borrowers still have the option to use the traditional 8-week Covered Period beginning on the day that the borrower’s PPP loan was funded. For example, if the borrower received its PPP loan proceeds on Monday, April 20, 2020, then the first day of the Covered Period is April 20 and the last day of the Covered Period is Sunday, June 14.

Also, it is now clear that borrowers are given the flexibility to include eligible payroll and non-payroll expenses paid or incurred during the 8-week forgiveness period. The eligible payroll costs are considered paid on the day that paychecks are distributed or the borrower originates an ACH credit transaction. The eligible payroll costs are considered incurred on the day that the employee’s pay is earned. The eligible payroll costs incurred but not paid during the borrower’s last pay period of the Covered Period (or Alternative Payroll Covered Period) are eligible for forgiveness if paid on or before the next regular payroll date. Otherwise, payroll costs must be paid during the Covered Period (or Alternative Payroll Covered Period). The eligible non-payroll costs (e.g. mortgage interest, rent, and utilities) must be paid during the Covered Period or incurred during the Covered Period and paid on or before the next regular billing date, even if the billing date is after the Covered Period.

SBA has issued further guidance on the full-time equivalent employee (FTE) reduction exceptions, and have also provided another avenue in which borrowers may avoid reductions in forgiveness when there is a reduction in FTEs. First, if the borrower made a good-faith, written offer to rehire an employee during the Covered Period or the Alternative Payroll Covered Period and the employee rejected the offer, then FTE reductions in these cases will not reduce the borrower’s loan forgiveness. Second, if employees who during the Covered Period or the Alternative Payroll Covered Period (a) were fired for cause, (b) voluntarily resigned, or (c) voluntarily requested and received a reduction of their hours, then FTE reductions in these cases will also not reduce the borrower’s loan forgiveness. It continues to remain an option for the borrower to fill any position with a new employee.

SBA has further clarified the existing safe harbor for borrowers to rehire employees by June 30, 2020. SBA has now stated that a borrower will be exempt from the reduction in loan forgiveness if (1) the borrower reduced its FTE levels between February 15, 2020, and April 26, 2020; and (2) the borrower then restored its FTE levels by June 30, 2020, to its FTE levels in the borrower’s pay period that included February 15, 2020.

Finally, similar to the PPP loan application, borrowers will be required to make certain representation and certification with respect to the application. Among these certifications is a statement that reads, “I understand that if the funds were knowingly used for unauthorized purposes, the federal government may pursue recovery of loan amounts and/or civil or criminal fraud charges.”  Therefore, it continues to be critical for borrowers to properly manage the PPP loan funds and maintain the necessary records to demonstrate the PPP loan fund were used for authorized purposes as provided in the CARES Act.

Many PPP loan borrowers have been long awaiting information on the forgiveness application, and the recently issued guidance included a lot of information to sort through. If you have questions, FMJ is here to help – please contact Jordanne Kissner at jordanne.kissner@fmjlaw.com, Bob Fafinski at robert.fafinski@fmjlaw.com, or Jim Seifert at james.seifert@fmjlaw.com.