First Loan Forgiveness Application released by the SBA and US Treasury Department

Late last Friday, May 15, the PPP Loan Forgiveness Application was released.

The Application

The application has four components:
  1. PPP Loan Forgiveness Calculation Form
  2. PPP Schedule A
  3. PPP Schedule A Worksheet
  4. Optional PPP Borrower Demographic Information Form.  

Borrowers are required to submit items (1) and (2) to their lender.
Forgiveable Costs

The SBA’s guidance provides four broad categories of costs that are eligible for forgiveness detailed on the application and below.
  1. Payroll costs
  2. Business mortgage interest payments
  3. Business rent or lease payments
  4. Business utility payments  

Costs must have been paid or incurred during the borrower’s “Covered Period,” which is the eight-week period that begins on the date the PPP loan was disbursed. For “Payroll costs” only, there is an allowable alternate covered period that starts on the day of the first payroll after the PPP loan proceeds were received, as follows:

Covered Period: 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 their PPP loan proceeds on Monday, April 20, the first day of the Covered Period is Monday, 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.
 
Also, note the following definitions of eligible payroll and eligible nonpayroll costs and the differences between counting costs that are “paid” vs. costs “incurred”:
 
Eligible payroll costs: Borrowers are generally eligible for forgiveness for the payroll costs paid and payroll costs incurred during the eight-week (56-day) Covered Period (or Alternative Payroll Covered Period) (“payroll costs”). Payroll costs are considered paid on the day that paychecks are distributed or the Borrower originates an ACH credit transaction. Payroll costs are considered incurred on the day that the employee’s pay is earned. 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).
 
For each individual employee, the total amount of cash compensation eligible for forgiveness may not exceed an annual salary of $100,000, as prorated for the covered period ($15,385 over the 8-week Covered Period). Count payroll costs that were both paid and incurred only once. For information on what qualifies as payroll costs, see Interim Final Rule on Paycheck Protection Program posted on April 2, 2020 (85 FR 20811).
 
Eligible nonpayroll costs:
(a) covered mortgage obligations: payments of interest (not including any prepayment or payment of principal) on any business mortgage obligation on real or personal property incurred before February 15, 2020 (“business mortgage interest payments”);
(b) covered rent obligations: business rent or lease payments pursuant to lease agreements for real or personal property in force before February 15, 2020 (“business rent or lease payments”); and
(c) covered utility payments: business payments for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020 (“business utility payments”).
 
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. Eligible nonpayroll costs cannot exceed 25% of the total forgiveness amount. Count nonpayroll costs that were both paid and incurred only once.
 
Therefore, it appears that you can either use costs paid in the Covered Period OR incurred in the Covered Period, but not both since that would likely result in the duplication of eligible costs. If you still have a question on the meanings of those items, please consult with your trusted Bodine Perry advisor.

As with prior guidance, the SBA requires that at least 75% of the forgiven amount be attributable to payroll costs. 

Also, keep in mind the potential reductions in forgiveness for reduced number of Full Time Equivalent employees (FTE’s: one FTE = 40 hours per week) and/or more than 25% reductions in the salary/hourly wage of employees. Those calculations are shown in lengthy detail on the application and have been described in prior newsletters as well.
 
There are safe harbors for not having to apply either of those potentially loan forgiveness limiting items. The FTE safe harbor under applicable law and regulation exempts certain borrowers from the loan forgiveness reduction based on FTE employee levels. Specifically, the Borrower is exempt from the reduction in loan forgiveness based on FTE employees described in the application if both of the following conditions are met: (1) the Borrower reduced its FTE employee levels in the period beginning February 15, 2020, and ending April 26, 2020; and (2) the Borrower then restored its FTE employee levels by not later than June 30, 2020 to its FTE employee levels in the Borrower’s pay period that included February 15, 2020.
 
The Salary/Hourly Wage safe harbor is determined as follows:
  • Step A - Calculate the employee’s annual salary or hourly wage as of February 15, 2020.
  • Step B - Calculate the average annual salary or hourly wage for the period from February 15, 2020 through April 26, 2020.
 
If Step B is greater than or equal to Step A, the safe harbor does not apply and you compute the reduction in forgiveness as prescribed in the application.
If Step B is less than Step A, proceed to Step C, which is to calculate the average annual salary or hourly wage for the employee as of June 30, 2020. If that amount is equal to or greater than Step A, the safe harbor has been met. In other words, the SBA will ignore a reduction in salary during the covered period relative to the first quarter of 2020, but only if that salary is restored to what it was on February 15, 2020, by June 30, 2020.
 
While we have provided a considerable amount of information, obtained primarily from the forgiveness application, there are even more details on the application to be aware of. You should take the time to read through the application to make yourself familiar with the various aspects and terms.

We will continue to update you as new information is made available and updates are released. Calculating the items required for loan forgiveness will take a considerable amount of time and effort. We're here to help!

Contact your trusted Bodine Perry Advisor
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