The New PPP Loan Forgiveness Application - What to Know
On Friday, May 15, 2020, the SBA released the Paycheck Protection Program Loan Forgiveness Application. This appears to be the first real glimpse into how the SBA intends to calculate the loan forgiveness amount. The 11-page forgiveness application does provide some clarity, but, as with the entire PPP process, it leaves plenty of a grey area for us to ponder. Hopefully, additional guidance will be released from the SBA as the application period nears.
The Application
The application comes in 3 parts:
1. PPP Loan Forgiveness Calculation Form
2. PPP Schedule A
3. PPP Schedule A Worksheet
If you're attempting to complete the application yourself, it's important to note that you should start from the worksheet and work your way to the calculation form. The application, once completed by the borrower, should be submitted to the borrower's lender. Borrowers may also compete a lender's electronic version of the application form.
At the top of the application, there is an expiration date of 10/31/2020. It's not clear as to what this date represents. Prior guidance suggests that borrowers have 90-days from the end of their 8-week period to apply for loan forgiveness.
Some Details Cleared Up
The application does clear up a few details, but these items are subject to change if the SBA releases additional guidance. It's probably a good idea to recheck against the latest guidance before submitting the forgiveness application. Consistent with our prior recommendations, continue to work with your banker to ensure you're meeting your bank's compliance requirements.
Some of the notable changes are discussed below.
8-Week Covered Period and an Alternative
The application reaffirms that the first day of the 8-week period "must be the same as the PPP loan Disbursement Date" (called the Covered Period). However, an alternative period is offered: "borrowers with a biweekly (or more frequent) payroll schedule may 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**" (called the Alternative Payroll Covered Period). While this is good news allowing some business owners to align the 8-week period with the start of a payroll period, it doesn't solve the problem of a business owner who has received funds but is not yet allowed to operate due to state-mandated closures.
Payroll Costs Paid or Incurred
Until this application, we were not sure if borrowers had to spend the cash strictly within the 8-week period. Now we have some clarity.
Borrower's payroll costs are eligible for forgiveness for payroll costs "paid" or "incurred" during the Covered Period or the Alternative Payroll Period.
Payroll costs are considered incurred on the day that the employee's pay is earned. Payroll costs incurred but not paid by the last day of the 8-week period must be paid by the next regular payroll date for it to be eligible for forgiveness.
What's interesting is this: how far back can a borrower go to claim that payroll costs were incurred?
Leading up the funding of PPP loans, some borrowers may have deferred the payment of payroll until after funding. Employees presumably earned their paycheck before the funding date. If the payroll was deferred for one month, could a borrower include that payroll costs in the calculation for forgiveness? What if the deferral period was for two months? The application is not clear on this.
Non-payroll Costs
The application also uses the same "paid" or "incurred" language with non-payroll costs, which 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.
Note the distinction in the eight weeks here. For non-payroll costs, the application uses the term "Covered Period" only. For payroll costs, the application uses the term "Covered Period" or "Alternative Payroll Period". As such, it seems that non-payroll costs are not afforded the same flexibility in its 8-week period.
Amounts Paid to Owners
There is a section in the application called "Compensation to Owners," and the applicant is instructed to "enter any amounts paid to owners (owner-employees, a self-employed individual, or general partners)."
Note that it does not refer to this payment amount as "compensation," which is used in other places on the application when reference is being made to employee compensation. While it is not entirely clear, it may be safe to assume that "any amounts paid to owners" can include distributions.
Next Steps
Now that there's some clarity, it may be an excellent time to run drop in actual and projected payroll numbers into the calculation to estimate the forgiveness. This may be easier said than done. The calculation on the application includes a lot of component calculations that are complicated that I've spared you the details on here.
As always, keep an open dialogue with your banker to make sure you're meeting the bank's requirement for forgiveness. We'll continue to update our blog as additional guidance is released.
