CARES ACT — THE SBA’S PAYCHECK PROTECTION PROGRAM: LOAN FORGIVENESS APPLICATION RELEASED
On May 16, 2020, the U.S. Small Business Administration (SBA) and the U.S. Department of the Treasury published its Paycheck Protection Program (PPP) Loan Forgiveness Application. Additionally, the Treasury Department stated in a press release that the SBA will issue regulations and guidance to further assist borrowers as they complete their loan forgiveness applications, and to provide lenders with guidance on their responsibilities.
The application provides detail and clarification regarding forgiveness of PPP loans and includes step-by-step guidelines to help borrowers determine their loan forgiveness amount. There are several noteworthy items in the application, including:
- With respect to calculating payroll costs, a PPP borrower may choose either the eight weeks following loan disbursement or eight weeks (56 days) beginning on the first day of its first pay period following loan disbursement. While the application indicates this alternate calculation period is “for administrative convenience” and can be used only for certain pieces of the application, it may enable borrowers to have more of their loan amount be forgivable due to timing.
- The borrower will have the flexibility to include expenses paid or incurred during the applicable period. Payroll costs are considered incurred on the day that an employee’s pay is earned. Payroll costs incurred but not paid during the eight weeks discussed above are eligible for forgiveness if paid on or before the next regular payroll date. As a result, borrowers should not need to accelerate payroll dates to fall within the applicable covered period to ensure forgiveness. This concept of “incurred” or “paid” applies to other permissible uses of funds, such as utilities and mortgage interest/rent payments as well.
- The borrower’s forgiveness amount will not be reduced for headcount reductions related to:
- Individuals to whom the borrower has made a written offer in good faith to rehire but who declined such offer (as previously provided in FAQ 40);
- Employees whose employment was terminated for cause; or
- Employees who voluntarily resigned.
The application requires borrowers to provide the amount of payroll and non-payroll costs paid using PPP loan funds and supporting documentation of these amounts. To prove the PPP loan funds were spent according to the terms of the PPP, the application requires borrowers to provide the following information:
- bank account statements or payroll service provider reports, payroll tax filings and state employee wage reporting and unemployment insurance tax filings;
- payment receipts, cancelled checks or account statements documenting payments to employee health or retirement plans;
- documents showing the average number of full-time equivalent employees on payroll for either the period of February 15, 2019, through June 30, 2019, or January 1, 2020, through February 29, 2020;
- documents showing business mortgage interest payments, including copies of lender amortization schedules or cancelled checks verifying payments;
- documents showing rent or lease payments, including copies of the current lease and receipts or cancelled checks verifying payments; and
- invoices of utility payments from February 2020 and the eight weeks following loan disbursement.
The application also requires the borrower to maintain the following in the business’s records:
- each relevant employee’s date of hire, furlough or firing, along with their wages and any wage reductions or reversal of wage reductions;
- evidence that no employees were paid more than the $100,000 annualized cap, or if they were, that the amount was not paid with PPP loan funds;
- documentation regarding any employee job offers and refusals, firings for cause, voluntary resignations and written requests by any employee for reductions in work schedule; and
- documentation supporting the full-time equivalent employee reduction safe harbor.
Borrowers are required to maintain all relevant PPP loan records for six years after the loan is forgiven or repaid in full. Additionally, the application requires a certification signed by the authorized representative for the borrower. This certification attests to the accuracy of both the application information and the documentation provided and acknowledges that knowingly making a false statement to obtain loan forgiveness carries civil and criminal penalties. Therefore, we recommend all clients review the application carefully and make sure they understand all the requirements of loan forgiveness.