PPP Loan Forgiveness Application: Recent Guidance Issued

Some much desired guidance on the PPP Loan Forgiveness Application has recently been issued by the Small Business Administration (“SBA”).  Here is a summary of the latest information:

Calculating Your Amount of PPP Loan Forgiveness:

• Subject to several limitations, Borrowers shall be eligible for forgiveness of their PPP Loan in an amount equal to the sum of the following costs incurred or paid during their eight consecutive week covered period:
  • Payroll costs (at least 75 percent of the loan forgiveness amount must be attributable to payroll costs); and
  • Non-payroll costs (eligible non-payroll costs cannot exceed 25 percent of the loan forgiveness amount)
  • Payroll costs and non-payroll costs are discussed below in general terms, and more fully described in the latest Interim Final Rule (link provided below) 

A Look at the Loan Forgiveness Process:

• Borrower must complete the Loan Forgiveness Application and submit it to its Lender
• Lender will review the Loan Forgiveness Application, make a decision regarding loan forgiveness and within 60 days issue a decision to the SBA 
• SBA will remit the appropriate forgiveness amount to the Lender, plus any interest accrued through the date of payment, not later than 90 days after the Lender issues its decision to SBA
• If applicable, SBA will deduct EIDL Advance Amounts from the forgiveness amount remitted to the Lender
• If SBA determines in the course of its review that the Borrower was ineligible for the PPP Loan, the loan will not be eligible for loan forgiveness
• The Lender is responsible for notifying the Borrower of the forgiveness amount
• If only a portion of the loan is forgiven, or if the forgiveness request is denied, any remaining balance due on the loan must be repaid by the Borrower on or before the two-year maturity of the loan. If the amount remitted by SBA to the Lender exceeds the remaining principal balance of the PPP Loan (because the Borrower made scheduled payments on the loan after the initial deferment period), the Lender must remit the excess amount, including accrued interest, to the Borrower
• A separate Interim Final Rule on SBA Loan Review Procedures and Related Borrower and Lender Responsibilities (link provided below) describes the SBA’s procedures for reviewing PPP Loan Applications and Loan Forgiveness Applications 

Payroll Costs Eligible for Forgiveness:

• Payroll costs paid or incurred during the eight consecutive week (56 days) covered period are eligible for forgiveness
• Borrowers may seek forgiveness for payroll costs beginning on either:
  • the date of disbursement of the Borrower’s PPP Loan proceeds from the Lender (i.e., the start of the covered period); or
  • the first day of the first payroll cycle in the covered period (the “alternative payroll covered period”) – this was designed for administrative convenience of the Borrower since the eight-week covered period will not always align with a Borrower’s payroll cycle
  • The Interim Final Rule provides additional guidance on when payroll costs are considered “paid” and when they are “incurred”
  • Payroll costs that were both paid and incurred during the covered period (or the alternative payroll covered period) may only be counted once
  • The term “payroll costs” is defined broadly to include compensation in the form of salary, wages, commissions, or similar compensation (which includes hazard pay and bonuses for an employee as long as the employee’s total compensation does not exceed $100,000 on an annualized basis) and also includes furloughed employees, with some limitations
  • The Interim Final Rule also addresses the amount of loan forgiveness for owner-employees and self-employed individuals’ payroll compensation 

Non-Payroll Costs Eligible for Forgiveness:

• Non-payroll costs are eligible for loan forgiveness if they were 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
• Advance payments of interest on a covered mortgage obligation are not eligible for loan forgiveness
• Principal on mortgage obligations is not eligible for forgiveness under any circumstances 

Reductions in Loan Forgiveness Amount:

• Certain reductions in a Borrower’s loan forgiveness amount are based on reductions in full-time equivalent (“FTE”) employees or in employee salary and wages during the covered period, subject to an important statutory exemption for Borrowers who have rehired employees and restored salary and wage levels by June 30, 2020, with limitations
• When an employee of the Borrower is fired for cause, voluntarily resigns, or voluntarily requests a reduced schedule during the covered period or the alternative payroll covered period (FTE reduction event), the Borrower may count such employee at the same FTE level before the FTE reduction event when calculating the FTE employee reduction penalty
• In calculating the loan forgiveness amount, a FTE employee means an employee who works 40 hours or more, on average, each week
• Borrowers seeking forgiveness must document their average number of FTE employees during the covered period (or the alternative payroll covered period) and their selected reference period as outlined in the Loan Forgiveness Application
• To ensure that Borrowers are not doubly penalized, the salary/wage reduction applies only to the portion of the decline in employee salary and wages that is not attributable to the FTE reduction 

Documentation Requirements:

• The Borrower needs to be mindful that there is documentation it must submit with its Loan Forgiveness Application, documentation it must maintain and make available upon request and documentation it may voluntarily submit with its Loan Forgiveness Application. 

The Interim Final Rule on Loan Forgiveness includes examples and more detailed explanations of the materials provided above and can be located here:  https://home.treasury.gov/system/files/136/PPP-IFR-Loan-Forgiveness.pdf  

Interim Final Rule on SBA Loan Review Procedures and Related Borrower and Lender Responsibilities can be located here:

https://home.treasury.gov/system/files/136/PPP-IFR-SBA-Loan-Review-Procedures-and-Related-Borrower-and-Lender-Responsibilities.pdf 

The Attorneys at Levene Gouldin & Thompson, LLP are available to provide advice and counsel concerning these new statutory obligations and other matters related to COVID-19.