On May 15, the Small Business Administration (SBA) released the Paycheck Protection Program (PPP) Loan Forgiveness Application with accompanying schedules and instructions. The release includes clarifications and new information on several key issues:
- Covered Period and Alternative Payroll Covered Period
Question 20 of the SBA’s Frequently Asked Questions (FAQs) on the PPP defined the “covered period” as “the eight-week period beginning the day the lender makes the first disbursement of the PPP loan to the borrower.” However, the Forgiveness Application offers a second option. The eight-week Alternative Payroll Covered Period, available to those that have a biweekly or more frequent payroll schedule, begins the first day of the borrower’s first payroll period following the PPP loan disbursement date. - Costs Incurred and Payments Made
The CARES Act includes as expenses eligible for forgiveness “costs incurred and payments made during the covered period.” The vague language led to different interpretations of what expenses would or would not be eligible.
In its definition of “eligible payroll costs,” the Application states that “borrowers are generally eligible for forgiveness for the payroll costs paid and payroll costs incurred” during the eight- week covered or alternative covered period. In addition, payroll costs that are incurred but not paid during the covered or alternative covered period are eligible for forgiveness if paid on or before the next regular payroll date.
Similarly, eligible non-payroll costs “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.”
- Reductions to Forgiveness
The Application provides detailed instructions on how to calculate full-time equivalent (FTE) reductions and salary and wage reductions. The CARES Act noted that reductions in either the FTE count or salaries and wages would reduce forgiveness but was not clear how the calculations would work. The Application not only offers some clarity, but provides accompanying schedules to help borrowers calculate the reductions. - True and Correct
Also, borrowers must certify that “the information provided in [their forgiveness application] and the information provided in all supporting documents and forms is true and correct in all material aspects.” Making a false statement to obtain forgiveness is punishable under the law with imprisonment and/or fines ranging up to $1 million. The Application states that “eligibility for loan forgiveness will be evaluated in accordance with the PPP regulations and guidance issued by the SBA through the date of [the forgiveness] application.” - More Guidance to Come
The loan application process evolved as Interim Rules and FAQs were issued. We expect the forgiveness process will also change with additional guidance. While borrowers may use the Application to begin preparing documentation and estimating forgiveness, they should understand that guidance could change, or that the SBA could provide additional clarification on forgiveness calculation and documentation.
Borrowers can download the Application from https://home.treasury.gov/policy-issues/cares/assistance-for-small-businesses. For more information about PPP loan forgiveness, please contact your HBK advisor.
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