SPECIAL REPORT: Exploring the Paycheck Protection Program Loan Forgiveness Application
The Small Business Administration (SBA) has released its form application for borrowers to use when applying for forgiveness of their Paycheck Protection Program (PPP) loans. The PPP loan program, enacted under the CARES Act, is a loan program to help small businesses during the COVID-19 pandemic. In order for the PPP loan to be forgiven, funds must be spent during the Covered Period on payroll, interest payments on mortgage obligations, rent or lease payments, and utility payments.
The loan forgiveness application, which can be found on the SBA’s website, has the following four parts:
(1) the PPP Loan Forgiveness Calculation Form;
(2) PPP Schedule A;
(3) a PPP Schedule A Worksheet; and,
(4) an optional PPP Borrower Demographic Information Form.
Borrowers are required to submit parts 1 and 2, the PPP Loan Forgiveness Calculation Form, and the PPP Schedule A to their lenders. The forgiveness application also provides a list of supporting documentation that each borrower must submit, and some lenders may require additional documentation. Therefore, it is important to check with your lender as to any additional documentation that may be required.
Alternative Covered Period:
To assess a borrower’s eligibility for forgiveness, lenders will evaluate the borrower’s use of loan proceeds during an eight-week period (the “Covered Period”). The Covered Period begins on the same day as the PPP Loan Disbursement Date. However, the application allows borrowers with a biweekly (or more frequent) payroll schedule to elect to calculate eligible payroll costs using the eight-week period that begins on the first day of their first pay period following their PPP Loan Disbursement Date.
Schedule A Worksheet:
The PPP Schedule A Worksheet is meant to help borrowers calculate what portion of their loan proceeds can be forgiven and how forgiveness will be lost for borrowers who reduce the number of full time equivalent employees or reduce the average hourly wage or salary of an employee by more than 25%.
Calculating Full Time Equivalent Employees:
The application allows borrowers to calculate the number of full time equivalent employees in one of two ways. This calculation will be used to determine whether the borrower’s loan forgiveness amount must be reduced due to a reduction in full time equivalent employees. The first method is to determine the average number of hours worked by each employee per week during the Covered Period, divide that number by 40, and round the total to the nearest tenth. The maximum for each employee is capped at 1.0. Alternatively, borrowers can apply a simplified method that assigns a 1 for employees who work 40 hours or more per week and .5 for employees who work fewer hours. The average number of full time equivalent employees during the Covered Period is then compared against the number of full time equivalent employees during one of the following periods (1) February 15, 2019 – June 30, 2019; (2) January 1, 2020 – February 29, 2020; or (3) for seasonal employers, a consecutive twelve-week period between May 1, 2019 and September 15, 2019.
The application provides reduction exceptions for (1) any positions for which the borrower made a good-faith, written offer to rehire an employee during the Covered Period which was rejected by the employee; (2) any employees who during the Covered Period (a) were fired for cause, (b) voluntarily resigned, or (c) voluntarily requested and received a reduction of their hours. Any full time equivalency reductions caused by one of these cases will not reduce the borrower’s loan forgiveness. Please note, the employer must maintain documentation regarding any employee job offers and refusals, firings for cause, voluntary resignations, and written requests by an employee for reductions in work schedule.
Calculating Salary and Wage Reductions:
The Schedule A Worksheet provides a multi-step approach to calculate salary and wage reductions, which will determine whether the amount of loan forgiveness should be reduced. The amount of loan forgiveness is reduced if employees who made less than $100,000 in annualized wages in 2019 receive a reduction in pay of more than 25% during the Covered Period. The calculation is made on a per employee basis, meaning each employee’s compensation during the Covered Period is measured against that employee’s compensation from January 1, 2020 to March 31, 2020.
The above mentioned exceptions for (1) any positions for which the borrower made a good-faith, written offer to rehire an employee during the Covered Period which was rejected by the employee and; (2) any employees who during the Covered Period (a) were fired for cause, (b) voluntarily resigned, or (c) voluntarily requested and received a reduction of their hours, will not reduce the borrower’s loan forgiveness, provided the employer has maintained documentation supporting these exceptions.
Owner-Employee Cap:
The forgiveness application places a special limit on any owner-employee or self-employed individual/general partner. The application provides a certification that the dollar amount for which forgiveness is requested does not exceed eight weeks’ worth of 2019 compensation for any owner-employee or self-employed individual/general partner, capped at $15,385 per individual. This limit effectively prevents a business from paying a bonus to an owner-employee who earned less than $100,000 in 2019.
Documents that Each Borrower Must Maintain:
Each borrower must maintain certain documents that they are not required to submit to its lender. These documents include the Schedule A Worksheet or its equivalent and the documentation used to complete and support the completion of the Schedule A Worksheet. Borrowers must also maintain all records relating to their PPP loan, including the documentation submitted with its loan application, documentation supporting the borrower’s certifications as to the necessity of the loan request and its eligibility for a PPP loan, documentation necessary to support the borrower’s loan forgiveness application, and documentation demonstrating the borrower’s material compliance with PPP requirements. Borrower’s must retain all such documentation in its files for six years after the day the loan is forgiven or repaid in full, and permit authorized representatives of the SBA to access such files upon request.
Please be aware that the information contained herein is current as of the date of the release of this Special Report and is subject to further changes and modifications by the SBA and federal officials. If you have any questions or need additional information, please contact us.
CONTACT:
Andrew J. Annes, Esquire
aannes@satclaw.com
Mobile: (312) 246-3110
John W. Campbell, Jr., Esquire
jcampbell@satclaw.com
Mobile: (312) 391-3126
Websites:
https://satclaw.com/
https://www.satcsolutions.com/