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Small Business Administration Releases PPP Forgiveness Application

On May 15, 2020, the Small Business Administration (SBA) released the Loan Forgiveness Application for loans under the Paycheck Protection Program (PPP). The release of the Forgiveness Application sheds further light on the process that borrowers will use to apply for the forgiveness of PPP loans. 

A link to the Forgiveness Application is here. Key highlights of the Forgiveness Application (which changes some aspects of forgiveness set forth in the CARES Act and subsequent guidance) include:

  • Alternative Payroll Covered Period –  Borrowers with biweekly or more frequent payroll schedules are permitted to calculate eligible payroll costs using the eight-week period that begins on the first day of the first pay period after the PPP loan is disbursed, instead of the date the PPP loan is disbursed (as provided under the CARES Act).
  • Payment of Payroll Costs – Payroll costs incurred but not paid during a 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.
  • 75% Threshold for Payroll Costs – Borrowers must certify that their forgiveness amount “does not include nonpayroll costs in excess of 25% of the amount requested.” Note: Borrowers are not required to report the entirety of their mortgage, rent, and utility payments if they do not want to include those amounts in their forgiveness amount.  
  • Cash Cap on Compensation – The $15,385 cap on cash compensation paid to an employee during the eight-week forgiveness period only applies to a subset of payroll costs and does not apply to employer contributions for health insurance, employer contributions to retirement plans, or employer state and local taxes on employee compensation (e.g. state unemployment insurance tax).
  • FTE Count – Full-time equivalency (FTE) under the PPP for employees is 40 hours, not 30 hours, as in the Affordable Care Act.
  • FTE Reduction Exemptions – Forgiveness will not be reduced due to a FTE reduction if a terminated employee (1) rejects a good-faith offer to be rehired (as indicated in FAQ 40), or (2) was “fired for cause,” voluntary resigned, or voluntary requested and received fewer hours.
  • Salary Reduction Expansion - The salary/wage requirement that reduces forgiveness, also applies to any employees who were hired in 2020. 
  • Re-Hire/Restoration of Salary Exemption – As long as a borrower restores its FTE levels by hiring employees by June 30, 2020, and/or restores their salaries/wages by June 30, 2020, there will be no forgiveness reduction for such employees.
  • Documents – The Forgiveness Application lists specific types of documentation borrowers must submit and certify the authenticity of, to apply for forgiveness (e.g, bank account statements, payroll tax filings, FTE documentation, copies of amortization schedules, etc.).

Arent Fox will continue to update, and expand on, this summary as more information becomes available.

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