On May 15, 2020, the SBA released its PPP Loan Forgiveness Application. After the application generated much confusion, additional guidance was issued and published by the SBA. The additional guidance includes (1) Loan Forgiveness Requirements; and (2) SBA Loan Review Procedures and Related Borrower and Lender Responsibilities. As it stands, Congress is currently considering even more changes to the PPP loan forgiveness process that includes proposals such as doubling the loan forgiveness period. Putting aside the possibility of additional changes, the SBA Loan Forgiveness Application and subsequent guidance has given small business borrowers a lot to think about. A few key takeaways from the Application and subsequent guidance include the following:
• 75% of the PPP Loan still must be used on payroll costs. Total costs for interest, rent, and utility payments “cannot exceed 25% of the loan forgiveness amount.”
• After a borrower submits the Loan Forgiveness Application to its lender, the lender has 60 days to issue a decision to the SBA. The SBA will then have 90 days to review the borrower’s application and remit the appropriate forgiveness amount to the lender.
• Payroll costs paid or incurred during the eight consecutive weeks (56 days) covered period are eligible for forgiveness. The start date for payroll costs is either the date of disbursement of the borrower’s PPP loan proceeds from the lender; or the first day of the first payroll cycle in the covered period (the “alternate payroll covered period”).
• When calculating the average full-time equivalency (FTE) during the covered period, such calculation is based on a 40-hour work week. As set forth in the application, under a simplified method, an employer can treat an employee who works 40+ hours a week as 1.0 FTE and any employee who works less than 40 hours a week as 0.5 FTE.
• The interim final rule makes it clear that employee bonuses, hazard pay, or any compensation paid to a furloughed employee are all considered “payroll costs” for purposes of loan forgiveness. The only exception is that an employee who receives a form of additional compensation must not exceed an annual salary of $100,000 in order for such compensation to be forgiven.
• There are caps on the amount of loan forgiveness available for owner-employees and self-employed individuals.
• Advance payments of interest on mortgage obligations are not eligible for loan forgiveness.
• Subject to certain restrictions, a borrower’s loan forgiveness amount will not be reduced if the borrower laid-off or reduced the hours of an employee, then offered to rehire the same employee for the same salary and same number of hours, or restore the reduction in hours, but the employee declines.
Many borrowers plan to submit their Loan Forgiveness Applications within the next 2-4 weeks. As the deadline approaches, it will be important for borrowers to understand their Loan Forgiveness Application in order to maximize their chances for complete loan forgiveness.