Last Friday, May 15, 2020, the Small Business Administration (SBA) released its long-awaited Paycheck Protection Program (PPP) Loan Forgiveness Application along with instructions for how to complete it.

The form and instructions inform borrowers how to apply for forgiveness of their PPP loans, consistent with the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).  The SBA also announced it will soon issue additional regulations and guidance to further assist borrowers as they complete their applications, and to provide lenders with guidance on their responsibilities.

What New Information and Clarification Does the Application Provide?

Full-Time Employee (FTE) Equivalent Defined: The SBA application clarified that one FTE is based on a 40-hour workweek for one employee. There was a lot of discussion that 30 hours would be used to determine FTE’s prior to this clarification.

The Covered Period: The SBA defined the Covered Period as the 8 week period (56 days) that starts on the day the PPP loan proceeds are received by the borrower. This is consistent with prior information. The SBA is now also permitting the use of an alternate 8-week period to determine the amounts spent on payroll costs for loan forgiveness purposes (the “Alternative Payroll Covered Period”). Borrowers with a biweekly (or more frequent) payroll schedule may elect to calculate eligible payroll costs using the 8-week period that begins on the first day of their pay period following the PPP loan disbursement date. The Alternative Payroll Period is not used to determine the amounts spent on non-payroll costs for loan forgiveness purposes.

Expenses Paid or Incurred: The SBA application provides that borrowers are generally eligible for forgiveness of payroll costs paid and incurred during the 8-week Covered Period or Alternative Payroll Covered Period. Payroll costs incurred, but not paid, during the borrower’s last pay period of the 8-week period are eligible for forgiveness if paid on or before the next regular payroll date. Borrowers can calculate payroll costs using either the Covered Period or the Alternative Payroll Covered Period at the Borrower’s election.

Also Included in the Application and Instructions:

  • Step-by-step instructions on how to perform the calculations required by the CARES Act to confirm eligibility for loan forgiveness
  • Borrower-friendly implementation of statutory exemptions from loan forgiveness reduction based on rehiring by June 30
  • Addition of a new exemption from the loan forgiveness reduction for borrowers who have made a good-faith, written offer to rehire workers that was declined

The PPP was created by the CARES Act to provide forgivable loans to eligible small businesses to keep American workers on the payroll during the COVID-19 pandemic. The application and instructions released on Friday clear up several issues, but there are still questions that will need to be answered with the forthcoming regulations and guidelines. We will continue to monitor the situation closely and provide timely updates as new information becomes available. If you have any questions about the PPP Loan Application for Forgiveness please contact your ALL tax advisor or call us at 617-738-5200.

Contact Us

Recent Articles