PPP Loan Forgiveness Application and Guidance
The Small Business Administration published the Loan Forgiveness Application and instructions for Payroll Protection Program (PPP) loans. Like the original PPP loan and program information, the guidance provided in the instructions is not fully defined or clear.
Here is some guidance collated from multiple sources including Forbes, AICPA, and several accounting firms.
The application has four components:
- PPP Loan Forgiveness Calculation Form;
- PPP Schedule A;
- PPP Schedule A Worksheet;
- (Optional) PPP Borrower Demographic Information Form.
Borrowers are required to submit items (1) and (2) to their lender, a long with a list of supporting documents. You lender may require additional supporting documentation.
You must attest to certain certifications on the forgiveness application. Note that while some are similar to the PPP loan applications, there are new, specific certifications. Read and understand these certifications before your Authorized Representative signs the application.
The application requires that borrowers who, along with its affiliates, received aggregate PPP funds over $2 million, check a box alerting the SBA to the size of the aggregate loan. If this may apply to you, seek legal guidance with respect to your loans and the affiliation rules.
The Covered Period for forgiveness is the eight-week (56 day) period beginning with receipt of funds.
The SBA’s guidance provides for four broad categories of costs that are eligible for forgiveness, as covered below. With some exceptions, these costs are forgivable as incurred, or paid, during this period provided that at least 75% of incurred costs are attributable to payroll costs. Costs must incurred or paid during your Covered Period.
1. Payroll costs
The SBA guidance allows you to request forgiveness for payroll costs “incurred” or “paid” during your Covered Period, or an Alternate Payroll Covered Period aligned with the start of the first payroll period after receipt of PPP funds. Incurred costs are recognized on the day they are earned; paid costs are recognized on the day paychecks are distributed or the ACH transaction is made. If your pay periods do not line up with your Covered Period, you may included incurred payroll costs not yet paid if they are paid on the next pay date.
Payroll costs include:
- Cash Compensation, such as:
- Gross salary / gross wages (Up to $15,385 — the equivalent of $100,000 per year — per employee)
- Gross tips
- Gross commissions
- Paid leave (excepting leave covered by the FFCRA)
- Allowances for dismissal or separation
- Non Cash Compensation, per SBA guidance, includes the total amounts of:
- Employer contributions for employee health insurance, excluding pre- or post tax employee contributions
- Employer contributions to employee retirement plans, excluding pre- or post tax employee contributions
- State and local taxes assessed on employee compensation, excluding taxes withheld from employee earnings
- Cash Compensation, such as:
Payroll costs include compensation to owners at the lower of the $15,385 or the 8-week equivalent of owners’ compensation during 2019.
2. Business Mortgage Interest
The SBA guidance allows for forgiveness of business mortgage interest payments during the Covered Period for any mortgage obligation in place before February 15, 2020.
3. Business Rent or Lease
The SBA guidance allows for forgiveness of business rent or lease payments on real or personal property during the Covered Period for any lease agreements in place before February 15, 2020.
4. Business Utility Payments
SBA guidance allows forgiveness of business utility payments for services in place before February 15, 2020, including:
- Heating Oil
- Internet Access
In addition to payroll limitations and the required payroll cost percentages, the CARES Act limits forgiveness if you reduce the average number of full-time equivalents (FTEs) during your Covered Period as compared with your past reference period (per your application). The SBA guidance provides for an exception if a new FTE Reduction Safe Harbor applies.
Per the SBA, you can calculate your FTEs in one of two ways:
- Enter the average number of hours paid per week for each employee during the Covered Period or the Alternative Payroll Covered Period, divide by 40, and round the total to the nearest tenth. The maximum for each employee, however, is capped at 1.0.
- Assign a 1.0 for employees who work 40 hours or more per week; 0.5 for employees who work less than 40 hours.
FTE Reduction Exceptions
The SBA allows for exceptions and does not penalize your for FTE reductions due to one of the following conditions:
- Reduction related to any positions for which you made a good-faith, written offer to rehire an employee during your Covered Period or Alternate Payroll Covered Period that was rejected by the employee.
- Reductions during your Covered Period or Alternate Payroll Covered Period for employees who (a) were fired for cause, (b) voluntarily resigned, or (c) voluntarily requested and received a reduction in hours.
FTE Reduction Safe Harbor
The SBA also recognizes a safe harbor that may keep you from losing loan forgiveness based on a reduction in your FTE level. You are exempt under Safe Harbor if (1) you reduced your FTE levels in the period beginning February 15, 2020, and ending April 26, 2020; AND (2) no later than June 30, 2020, you restored your FTE level to that in place for the pay period including February 15, 2020.
Salary / Hourly Wage Reductions
The CARES Act reduces your loan forgiveness amount if you reduced certain employee salary and wages by more than 25% during your Covered Period or Alternate Payroll Covered Period when compares with the period from January 1, 2020 to March 31, 2020.
- You may not include prepayment of costs not yet incurred in your forgiveness calculations.
- Any Economic Injury Disaster Loan (EIDL) advances, typically $1,000 per employee up to a maximum of $10,000, will be a direct reduction from your final PPP loan forgiveness.
- While the CARES Act includes as an allowable use of the loan to be ““interest on any other debt obligations that were incurred before the covered period,” the SBA guidance does not include this on the forgiveness application.
- While you may use PPP funds for this purpose, you should not include these costs on your forgiveness application without specific professional guidance.
- The definition of “health insurance” is not clear.
- Obtain professional guidance with respect to including or excluding dental, vision, and other insurance expenses from the forgivable cost calculation.
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