Following up on our previous article, Your PPP Has “Hit the Account,” Now What?, the U.S. Small Business Administration (“SBA”) has now released its Paycheck Protection Program Loan Forgiveness Application. Those Small businesses who received the loan will be able to seek forgiveness at the end of the 8-week coverage period that began when the money “hit the account” by submitting the PPP Loan Forgiveness Calculation Form and the PPP Schedule A (with supporting documents) the to the lender, bank or other financial institution that processed the loan.

The forgiveness application, found here, consists of:

• The PPP Loan Forgiveness Calculation Form;
  • The application consists of 11 lines of information to fill out that when calculated results in the amount of forgiveness a small-business owner will be eligible for. 
• PPP Schedule A; 
  • Schedule A instructions help to calculate the forgiveness amount and adjustments thereto
• The PPP Schedule A Worksheet; and 
  • The Worksheet provides tables and calculations for salary and full-time equivalent employee (FTE) reductions
• The (optional) PPP Borrower Demographic Information Form.

The form and instructions include several measures to reduce compliance burdens and simplify the process for borrowers, including:

• Options for borrowers to calculate payroll costs using an “alternative payroll covered period” that aligns with borrowers’ regular payroll cycles
• Flexibility to include eligible payroll and nonpayroll expenses;
  • The application clarifies that payroll and nonpayroll costs eligible for forgiveness include such costs that are either paid during the Covered Period or are incurred, but not paid, during the last pay period of the Covered Period (will need to be paid in the next pay period).
• Step-by-step instructions on how to perform the calculations required by the CARES Act to confirm eligibility for loan forgiveness;
• Addition of a new payroll reduction exemption for borrowers who have made a good-faith, written offer to rehire workers that was declined.
  • In general, you are required to maintain the average number of employees, and any reduction in headcount will result in a reduction in the forgivable amount. However, the new guidance makes it clear that your forgiveness amount will not be reduced for employee reductions related to:
    • Individuals to whom the borrower has made a written offer in good faith to rehire, but the employee declined;
    • Employees whose employment was terminated for cause; or
    • Employees who voluntarily resigned.

In addition to the application itself, you will need to submit some documentation. You must also keep these documents for “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.”

Payroll: 

Documentation verifying the eligible cash compensation and non-cash benefit payments (the forgivable payments) from the Covered Period (the 8 weeks after the draw down) or the Alternative Payroll Covered Period consisting of each of the following: 

• Bank statements or payroll company reports documenting compensation paid to employees; 
• Tax forms (or equivalent third-party payroll service provider reports) for the periods that overlap with the Covered Period (the 8 weeks after the draw down) or the Alternative Payroll Covered Period: 
  • Payroll tax filings (or to be filed) with 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; and 
• 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 (PPP Schedule A, lines (6) and (7)). 

Full Time Employment 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. 

Nonpayroll:

Documentation verifying the existence of the obligations/services prior to February 15, 2020 and the existence of the obligations/services for the Covered Period. Any eligible nonpayroll cost placed in service after this date is not eligible for forgiveness.

• 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; and 
• 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. 

It’s important to realize there are other documents listed in the application that you must maintain but not required to submit – found on Page 10 of the application.

Certifications

As with the application, you have to agree to certain certifications. Read them carefully. Here are a few that catch our eye: 

• The dollar amount for which forgiveness is requested is for eligible costs (payroll, business mortgage, interest payments, business rent or lease payments, or business utility payments);
• If funds are used for unauthorized purposes, the federal government may pursue recovery of the loan amounts with penalties and/or civil or criminal fraud charges; and 
• Making a false statement to obtain forgiveness is punishable by imprisonment and a fine.

These are just a few of the items detailed in the 11-page application. The SBA has promised to release further regulations and guidance to assist borrowers as they complete their applications, and to provide lenders with guidance on their responsibilities.

The PPP was created by the CARES Act to provide “forgivable” loans to eligible small businesses to keep American workers on the payroll during the COVID-19 pandemic.  These new documents released will help small businesses seek forgiveness. If you have any questions with your application, please reach out to us. 

Please keep in mind this information is changing rapidly and is based on our current understanding of the program. It can and likely will change. Although we will be monitoring and updating this as new information becomes available, please do not rely solely on this for your financial decisions. 

This blog is for informational purposes only.  It does not constitute legal or financial advice and may not be relied upon as such.  If you face a legal issue, you should consult a qualified attorney for independent legal advice with regard to your particular set of facts.  This blog may constitute attorney advertising.  This blog is not intended to communicate with anyone in a state or other jurisdiction where such a blog may fail to comply with all laws and ethical rules of that state of jurisdiction.