The SBA has released new PPP Loan Forgiveness guidance effective May 15, 2020! This guidance comes in the form of the Loan Forgiveness Application. The instructions provide answers to many of the open items and change several components of the calculation. We will be updating our calculator with the new information. However, the highlights are below.
PPP Loan Forgiveness Application
- SBA Loan Forgiveness Application: https://www.sba.gov/document/sba-form–paycheck-protection-program-loan-forgiveness-application
- US Chamber of Commerce Loan Forgiveness Guide: https://www.uschamber.com/sites/default/files/uscc_ppp_forgiveness-guide.pdf
Covered Period
Under the new guidance, the covered period remains the same.
Enter the eight-week (56-day) Covered Period of your PPP Loan. The first day of the Covered Period must be the same as the PPP Loan Disbursement Date.
For example, if the Borrower received its PPP loan proceeds on Monday, April 20, the first day of the Covered Period is April 20 and the last day of the Covered Period is Sunday, June 14.
Alternative Payroll Covered Period
Additionally, the SBA has added a new Alternative Covered Period.
For administrative convenience, Borrowers with a bi-weekly (or more frequent) payroll schedule may elect to calculate eligible payroll costs using the eight-week (56-day) period. This period 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, and
- The last day of the Alternative Payroll Covered Period is Saturday, June 20.
Borrowers who elect to use the Alternative Payroll Covered Period must apply the Alternative Payroll Covered Period wherever there is a reference in this application to “the Covered Period or the Alternative Payroll Covered Period.” However, Borrowers must apply the Covered Period (not the Alternative Payroll Covered Period) wherever there is a reference in this application to “the Covered Period” only.
Eligible Payroll Costs
The SBA has clarified its guidance on timing and how to consider incurred costs.
Borrowers are generally eligible for forgiveness for the payroll costs paid and payroll costs incurred during the eight-week (56-day) Covered Period (or Alternative Payroll Covered Period) (“payroll costs”).
- Per the latest SBA guidance, payroll costs are considered paid on the day that paychecks are distributed or the Borrower originates an ACH credit transaction.
- The SBA is considering payroll costs incurred on the day that the employee’s pay is earned.
- Finally, 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).
Eligible Payroll Costs Limitations for Owners
Line 9: Enter any amounts paid to owners (owner-employees, a self-employed individual, or general partners). The SBA has capped this amount at $15,385 (the eight-week equivalent of $100,000 per year) for each individual or the eight-week equivalent of their applicable compensation in 2019, whichever is lower.
See Interim Final Rule on Additional Eligibility Criteria and Requirements for Certain Pledges of Loans posted on April 14, 2020, for more information (85 FR 21747, 21749).
Salary/Hourly Wage Reduction
As hoped, the SBA changed this calculation to reflect averages of the periods for PPP loan forgiveness. Additionally, the SBA is now comparing this average to Q1. (Previously the SBA planned to compare the 8 weeks to the last full quarter worked.)
Average FTE
The SBA defined its Average FTE calculation.
“Average FTE” calculates the average full-time equivalency (FTE) during the Covered Period or the Alternative Payroll Covered Period.
For each employee, enter the average number of hours paid per week, divide by 40, and round the total to the nearest tenth. Note: the SBA caps each employee at a maximum of 1.0.
Borrowers may elect to use a simplified method. This assigns a 1.0 for employees working 40+ hours per week and 0.5 for employees working fewer hours.
Future Updates
We know that the weeks to come will bring unexpected challenges for the business community as a whole due to the Coronavirus. We will continue to provide ongoing communications and support as more details unfold.
Finally, if you have any questions or concerns, please feel free to contact us at (866) 946.2032 or by emailing our support team. And don’t forget to follow us out on Facebook, Twitter, and LinkedIn for even more Coronavirus and business updates!