Paycheck Protection Loan Forgiveness Application released on May 15, 2020

On Friday night, May 15, 2020, the Small Business Administration published its Paycheck Protection Program Loan Forgiveness Application. Here’s a link to the actual loan forgiveness application.

The loan forgiveness application clarifies some questions we had and provides some shortcuts for borrowers.

We were all concerned as to how the pay period would work. If we could only count “paid and incurred” during the eight weeks following the loan, do we have to do it on an accrual basis (when the pay period ran) or do we count the actual paycheck date. The application now clarifies this and basically gives us two alternatives for figuring this out. It’s, sort of, using an accrual basis. But here are the two methods for accumulating your payroll costs. The loan application describes the requirement that spending be “paid and incurred” during the eight-week covered period or alternate payroll covered period.

Here is the actual language from the application instructions for the two methods:

Covered Period: Enter the eight-week (56-day) Covered Period of your PPP loan. The first day of the Covered Period must be the same as the PPP Loan Disbursement Date. For example, if the Borrower received its PPP loan proceeds on Monday, April 20, the first day of the Covered Period is April 20 and the last day of the Covered Period is Sunday, June 14.”

“Alternative Payroll Covered Period: For administrative convenience, Borrowers with a biweekly (or more frequent) payroll schedule may elect to calculate eligible payroll costs using the eight-week (56-day) period that begins on the first day of their first pay period following their PPP Loan Disbursement Date (the “Alternative Payroll Covered Period”). For example, if the Borrower received its PPP loan proceeds on Monday, April 20, and the first day of its first pay period following its PPP loan disbursement is Sunday, April 26, the first day of the Alternative Payroll Covered Period is April 26 and the last day of the Alternative Payroll Covered Period is Saturday, June 20. Borrowers who elect to use the Alternative Payroll Covered Period must apply the Alternative Payroll Covered Period wherever there is a reference in this 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 this application to “the Covered Period” only.”

The application instructions also provide that only payroll is eligible to use the “Alternative Payroll Covered Period.”

This is method is available for both payroll and non-payroll costs: “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.” And for non-payroll costs, “An eligible nonpayroll 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.”

Clarified and Simplified Full Time Equivalent Employee (FTE) Formula

You can lose forgiveness if a reduction in the FTE employee headcount as compared to a certain chosen period is not restored by 6/30/2020. The new simplified method of calculating FTE that we can use is to count employees who work more than 40 hours in a week as one FTE. You would also count each employee who works less than 40 hours as .5 of an FTE. So, if you have a lot of part-time workers with 10 to 25 hours, for example, each of those who worked for the week to count as .5.

The 75% Threshold of Loan Proceeds having to be spent on Payroll Costs?

There was some concern out there that you needed to spend at least 75% of the loan amount on payroll to get forgiveness. As an example of what could have been was if you were inadvertently advanced a higher amount, because you included 1099-Misc independent contractors in your payroll loan calculation. Later, we found out that they were not eligible for the forgiveness amounts and that might leave us short when paying out our W-2 employees. Would we lose all the forgiveness amounts because we would be under the 75% of loan proceeds going to Payroll Costs?  Luckily, the application clarifies that loan forgiveness just needs to include at least 75% payroll costs.

The actual formula does this by limiting forgiveness to the amount calculated as your total payroll costs divided by .75.

Filling out the application

While the SBA has posted the Forgiveness Application, lenders can create their own version of the application that includes all the application line items and requirements.  This would, most likely, be like the loan application process you went through with attaching certain documents to support your numbers.

Although many of our small business clients who received PPP Loans are equipped to understand the accounting terminology, like accrual based, some of you may need help with the application. Completing the PPP loan forgiveness application and understanding all the rules and instructions could be quite overwhelming for most of you. There’s a link to the form and instructions below.  Should you need assistance, please contact us at 561-995-0064.

SBA Application Link.

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