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SBA’s PPP Loan Forgiveness Application and Instructions: Notes of Significant Items
On Friday, May 16, 2020, the Small Business Administration (“SBA”) published its Paycheck Protection Program (“PPP”) Loan Forgiveness Application and Instructions (the “Forgiveness Application”). The Forgiveness Application not only sets forth the method by which borrowers must calculate the PPP loan forgiveness amount, but also includes new rules and guidance relating to loan forgiveness. The most notable of the new rules and guidance are as follows:
1. Alternative Payroll Covered Period. For administrative convenience, the SBA provided borrowers who maintain a biweekly (or more frequent) payroll schedule with the option to elect to calculate eligible payroll costs using the eight-week (56-day) period beginning the first pay period following their PPP loan disbursement date (the “Alternative Payroll Covered Period”). For example, if a 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, the first day of the Alternative Payroll Covered Period is April 26, 2020, and the last day of the Alternative Payroll Covered Period is June 20, 2020.
Borrowers who elect to use the Alternative Payroll Covered Period must apply the Alternative Payroll Covered Period wherever there is a reference in the Forgiveness Application to “the Covered Period or the Alternative Payroll Covered Period.” However, borrowers must apply the Covered Period (not the Alternative Payroll Covered Period) wherever there is a reference in the application to only “the Covered Period.”
2. PPP Loans Over $2 Million. The first page of the Forgiveness Application requires the borrower to check a box if the borrower, together with affiliates, received PPP loans with an original principal amount in excess of $2 million. Since the SBA and Treasury Department have stated that PPP loans in excess of $2 million will be audited, this provision undoubtedly is intended to signal to the SBA whether or not the PPP loans for which the borrower is seeking forgiveness should be audited.
3. Forgivable Payroll Expenses Paid After the 8th Week of Covered Period. The SBA provided an exception to the general rule that forgivable expense payments must be made during the 8-week covered period to be eligible for forgiveness. Specifically, the Forgiveness Application provides that payroll costs incurred but not paid during the borrower’s last pay period under the Covered Period (or Alternative Payroll Covered Period) are eligible for forgiveness if paid on or before the next regular payroll date.
4. Forgivable Non-Payroll Expenses Paid After 8th Week of Covered Period. Similarly, the Forgiveness Application provides that an eligible non-payroll cost 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.
5. The 75% Payroll Rule is not “all or nothing.” There has been some speculation that if a borrower did not spend at least 75% of PPP loan proceeds on forgivable payroll costs, then none of the PPP loan would be forgiven. Based upon the method provided in the Forgiveness Application to determine the amount of PPP loan forgiveness, it is now clear that a PPP loan may be partially forgiven even though the borrower did not spend at least 75% of the PPP loan proceeds on payroll costs.
6. Calculation of FTEs. The Forgiveness Application resolves the issue of how Full-Time Equivalent Employees (“FTEs”) are calculated. Specifically, it states that for each employee, the borrower should enter the average number of hours paid per week, divide by 40, and round the total to the nearest tenth. The maximum for each employee is capped at 1.0. The SBA also provides that, at the election of the borrower, FTEs may be calculated by a more simplified method by which 1.0 is assigned for employees who work 40 hours or more per week and 0.5 is assigned for employees who work fewer hours.
7. FTE Forgiveness Reduction Exception. Schedule A of the Forgiveness Application states that if a borrower has not reduced the number of employees or the average paid hours of its employees between January 1, 2020, and the end of the Covered Period (the 8-week period starting on the date of the first PPP loan disbursement), then the borrower has met the “safe harbor” requirements concerning reduction of FTEs.
8. Forgiveness Reduction Exception for Rejected Offer of Rehire. The Forgiveness Application provides that a borrower’s loan forgiveness is not reduced based upon the termination of an employee if the borrower made a good-faith, written offer to rehire the employee during the Covered Period or the Alternative Payroll Covered Period.
9. Other Forgiveness Reduction Exceptions. The Forgiveness Application further provides that any FTE reductions in the following cases do not reduce the borrower’s loan forgiveness if the subject employees, during the Covered Period or Alternative Payroll Covered Period:
- were fired for cause,
- voluntarily resigned, or
- voluntarily requested and received a reduction of their hours.
Borrowers should be prepared to submit documents that support any of the circumstances set forth in items 8 and 9 above.
Please find a copy of the SBA PPP Loan Forgiveness Application here. If you have any questions, please feel free to contact our office at 402.492.9200 or email any of our Banking & Finance attorneys.
Fri May 22, 10:03pm Share