Paycheck Protection Loan Forgiveness Frequently Asked Questions
Published: May 18, 2020
The SBA and U.S. Treasury Department have jointly issued their application and instructions for PPP forgiveness. The application can be found here:
The following summarizes many of the important points to consider when applying for forgiveness for your PPP loan:
What forms are necessary to be filled out?
This application has the following components: (1) the PPP Loan Forgiveness Calculation Form; (2) PPP Schedule A; (3) the PPP Schedule A Worksheet; and (4) the (optional) PPP Borrower Demographic Information Form. All Borrowers must submit (1) and (2) to their Lender.
What is the time period for which loan proceeds must be used in to be eligible for forgiveness?
Specific to eligible payroll costs, the borrower may elect to use either the “covered period” or the “alternative covered period”. For eligible non-payroll expense, only the “covered period” may be used.
Covered Period: The eight-week (56 day) period beginning on the PPP Loan Disbursement Date.
Alternative Payroll Covered Period: For administrative convenience, Borrowers with a biweekly (or more frequent) payroll schedule may elect to calculate eligible payroll costs using the eight-week (56-day) period that begins on the first day of their first pay period following their PPP Loan Disbursement Date (the “Alternative Payroll Covered Period”). For example, if the Borrower received its PPP loan proceeds on Monday, April 20, and the first day of its first pay period following its PPP loan disbursement is Sunday, April 26, the first day of the Alternative Payroll Covered Period is April 26.
What costs are eligible for forgiveness?
- Eligible payroll costs: Borrowers are generally eligible for forgiveness for the payroll costs paid and payroll costs incurred during the eight-week Covered Period (or Alternative Payroll Covered Period). Payroll costs are considered paid on the day that paychecks are distributed or the Borrower originates an ACH credit transaction. Payroll costs are considered incurred on the day that the employee’s pay is earned. Payroll costs incurred but not paid during the Borrower’s last pay period of the Covered Period (or Alternative Payroll Covered Period) are eligible for forgiveness if paid on or before the next regular payroll date. Otherwise, payroll costs must be paid during the Covered Period (or Alternative Payroll Covered Period). For each individual employee, the total amount of cash compensation eligible for forgiveness may not exceed an annual salary of $100,000, as prorated for the covered period. Count payroll costs that were both paid and incurred only once. For information on what qualifies as payroll costs, see Interim Final Rule on Paycheck Protection Program posted on April 2, 2020 (85 FR 20811). Of importance, for 100% forgiveness, at least 75% of the loan proceeds must have been used for payroll. Also, compensation to any owner-employee or self-employed individual cannot exceed 8 weeks of 2019 compensation, capped at $15,385 per individual.
- Eligible nonpayroll costs: Nonpayroll costs eligible for forgiveness consist of: (a) covered mortgage obligations: payments of interest (not including any prepayment or payment of principal) on any business mortgage obligation on real or personal property incurred before February 15, 2020 (“business mortgage interest payments”); (b) covered rent obligations: business rent or lease payments pursuant to lease agreements for real or personal property in force before February 15, 2020 (“business rent or lease payments”); and (c) covered utility payments: business payments for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020 (“business utility payments”). An eligible nonpayroll cost 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. Eligible nonpayroll costs cannot exceed 25% of the total forgiveness amount. Count nonpayroll costs that were both paid and incurred only once.
What are the requirements as to FTE employees numbers when applying for forgiveness?
One factor used in determining the amount of loan forgiveness as calculated in the Loan Forgiveness Application is a comparison as to the number of FTE employees. The Loan Forgiveness Application should be referenced as to the specifics; however, below are some key items:
- Most importantly, FTE Safe Harbor provides exemption from any possible reduction in loan forgiveness that would otherwise be determined by the calculation in the Loan Forgiveness Application if both of the following conditions are met:
- The Borrower reduced its FTE employee levels in the period beginning February 15, 2020, and ending April 26, 2020; and
- The Borrower then restored its FTE employee levels by not later than June 30, 2020 to its FTE employee levels in the Borrower’s pay period that included February 15, 2020.
- FTE employees are calculated based on a 40-hour work week. For each employee, enter the average number of hours paid per week, divide by 40, and round to the nearest tenth. A simplified method that assigns a 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work fewer hours may be used at the election of the Borrower.
- With regards to a reduction in FTE employees and the possible reduction in loan forgiveness, the following are provided an exception from a possible reduction:
- Any positions for which the Borrower made a good faith written offer to rehire an employee during the Covered Period or the Alternative Payroll Covered Period which was rejected by the employee; and
- Any employee who during the Covered Period or the Alternative Payroll Covered Period was either (a) fired for cause, (b) voluntarily resigned, or (c) voluntarily requested and received a reduction in their hours.
What documentation does the borrower submit to the lender?
- SBA Form 3508 Loan Forgiveness Application
- Payroll: Documentation verifying the eligible cash compensation and non-cash benefit payments from the Covered Period or the Alternative Payroll Covered Period consisting of each of the following.
- Bank account statements or third-party payroll service provider reports documenting payroll.
- Tax forms (or equivalent third-party payroll service provider reports) for the periods that overlap with the Covered Period or the Alternative Payroll Covered Period:
- Payroll tax filings reported, or that will be reported, to the IRS (typically, Form 941); and
- State quarterly business and individual employee wage reporting and unemployment insurance tax filings reported, or that will be reported, to the relevant state.
- Payment receipts, cancelled checks, or account statements documenting the amount of any employer contributions to employee health insurance and retirement plans that the Borrower included in the forgiveness amount.
- FTE: Documentation showing at the election of the Borrower:
- the average number of FTE employees on payroll per month employed by the Borrower between February 15, 2019 and June 30, 2019;
- the average number of FTE employees on payroll per month employed by the Borrower between January 1, 2020 and February 29, 2020; or
- in the case of a seasonal employer, the average number of FTE employees on payroll per month employed by the Borrower between February 15, 2019 and June 30, 2019; between January 1, 2020 and February 29, 2020; or any consecutive twelve-week period between May 1, 2019 and September 15, 2019.
- Documents may include payroll tax filings reported, or that will be reported, to the IRS (typically, Form 941) and state quarterly business and individual employee wage reporting and unemployment insurance tax filings reported, or that will be reported, to the relevant state. Documents submitted may cover periods longer than the specific time period.
- Nonpayroll: Documentation verifying existence of the obligations/services prior to February 15, 2020 and eligible payments from the Covered Period.
- Business mortgage interest payments: Copy of lender amortization schedule and receipts or cancelled checks verifying eligible payments from the Covered Period; or lender account statements from February 2020 and the months of the Covered Period through one month after the end of the Covered Period verifying interest amounts and eligible payments.
- Business rent or lease payments: Copy of current lease agreement and receipts or cancelled checks verifying eligible payments from the Covered Period; or lessor account statements from February 2020 and from the Covered Period through one month after the end of the Covered Period verifying eligible payments.
- Business utility payments: Copy of invoices from February 2020 and those paid during the Covered Period and receipts, cancelled checks, or account statements verifying those eligible payments.
What documentation must the borrower maintain in file?
PPP Schedule A Worksheet or its equivalent and the following:
- Documentation supporting the listing of each individual employee in PPP Schedule A Worksheet Table 1, including the “Salary/Hourly Wage Reduction” calculation, if necessary.
- Documentation supporting the listing of each individual employee in PPP Schedule A Worksheet Table 2; specifically, that each listed employee received during any single pay period in 2019 compensation at an annualized rate of more than $100,000.
- Documentation regarding any employee job offers and refusals, firings for cause, voluntary resignations, and written requests by any employee for reductions in work schedule.
- Documentation supporting the PPP Schedule A Worksheet “FTE Reduction Safe Harbor.”
All records relating to the Borrower’s PPP loan, including documentation submitted with its PPP 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. The Borrower must retain all such documentation in its files for six years after the date the loan is forgiven or repaid in full, and permit authorized representatives of SBA, including representatives of its Office of Inspector General, to access such files upon request.
Will further guidance or instructions be released?
The SBA has noted that it will soon issue regulations and additional guidance for borrowers on completing the forgiveness form, as well as guidance for lenders detailing their responsibilities. We will keep you updated regarding any additional guidance or regulations that are released. In the meantime, if you have any questions, please contact your lender directly or call 918-272-5301.