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PPP Loan Forgiveness Application Form is out!

Forty-two days after the first Paycheck Protection Program (PPP) Loan Applications were accepted, the SBA released the PPP Loan Forgiveness Application. SBA Form 3508 includes 2 pages of instructions, Schedule A and its worksheet for computations, and 7 pages of application. That’s 11 pages and it’s just the start as SBA has yet to release FAQs or “interim final rules” to provide friendlier and more complete details for the forgiveness application.

According to the SBA, 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: The forgiveness application allows the borrower to use the eight-week period following the receipt of the first loan proceeds (Covered Period) or to elect an “Alternative Payroll Covered Period” that begins on the first day of the borrower’s first pay period following the receipt of the first loan proceeds and ends eight weeks (56 days) thereafter.

  • Flexibility to include eligible payroll and non-payroll expenses paid or incurred during the eight-week period after receiving their PPP loan: The forgiveness application provides that an eligible non-payroll cost (interest, rent, utilities) must be paid during the Covered Period or incurred during the eight-week Covered Period and paid on or before the next regular billing date, even if the billing date is after the Covered Period. 

Usefully, the loan application also lists out what counts as utilities: “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

  • Step-by-step instructions on how to perform the calculations required by the CARES Act to confirm eligibility for loan forgiveness: any amounts paid to owners (owner-employees, a self-employed individual, or general partners)… [are] capped 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.

  • Borrower-friendly implementation of statutory exemptions from loan forgiveness reduction based on rehiring by June 30

  • Addition of a new exemption from the loan forgiveness reduction for borrowers who have made a good-faith, written offer to rehire workers that was declined.”

  • Clarification of the 75% payroll expense rule: The Instructions in the forgiveness application clarify that the borrower can total payroll costs (wages, health insurance and retirement plan expenses). And, then limit the sum of other forgivable expenses (rent, mortgage interest and utilities) to 1/3 of payroll costs.

The 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.

Here is a list are some heretofore open questions clarified by the loan forgiveness application and instructions:

  • First day of the covered period begins on the date of first loan disbursement.

  • Alternate payroll covered period begins on the first day of the first pay period after the first loan disbursement.

  • Audit threshold for loans in excess of $2 million is based on the original principal amount disbursed, including affiliate loans.

  • EIDL advances will be deducted from the forgiveness amount remitted to the lender.

  • Payroll costs are considered paid on the day paychecks are distributed or the borrower originates an ACH credit transaction.

  • Payroll costs are considered earned on the day the employee’s pay is earned.

  • Payroll costs incurred but not paid during borrower’s last pay period of the covered or alternate payroll covered period are eligible for forgiveness if paid on or before the next regular payroll date.

  • Count payroll costs that were paid and incurred only once.

  • Business rent or lease payments extends to lease agreements for real or personal property.

  • Utility payments include transportation.

  • Eligible non-payroll costs must be paid or incurred during the covered period and paid on or before the next regular billing date, even if after the covered period.

  • Count non-payroll costs that were paid and incurred only once.

  • SBA may request additional information to evaluate borrower’s eligibility for the PPP loan and for loan forgiveness, and failure to provide information may result in an ineligibility determination or denial of the loan forgiveness application.

  • Borrower’s eligibility for loan forgiveness will be evaluated in accordance with PPP regulations and guidance issued by SBA through the date of the loan forgiveness application, and SBA may direct a lender to disapprove of the application if SBA determines the borrower was ineligible for the loan.

  • Average full-time equivalency (FTE) is the average numbers of hours paid per week divided by 40 (rounded to the nearest tenth), with the maximum for each employee capped at 1.0. Or borrower may elect 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.

  • Salary and hourly wage reduction applies only to employees whose salaries or hourly wages were reduced more than 25% during the covered or alternate covered period compared to the period January 1, 2020 through March 31, 2020.

  • FTE reduction exception applies and does not reduce borrower’s loan forgiveness for any positions for which the borrower made a good faith, written offer to rehire which was rejected by the employee or for any employees who were fired for cause, voluntarily resigned or voluntarily requested (in writing) and received a reduction in their hours.

  • List of documents each borrower must submit to support payroll, FTE and non-payroll calculations.

  • List of documents each borrower must maintain for a period of six years after the date the loan is forgiven or repaid in full, but is not required to submit unless requested by an SBA authorized representative, including representatives of its Office of Inspector General.

  • Optional borrower demographic information collected on veteran, gender, race and ethnicity data about each principal of borrower, including full name and position, for program reporting purposes only.

As people get more familiar with the application, new questions will arise, and the SBA has promised new regulations and guidance along the way. This new application changs a little bit the initial premises for borrower’s calculations, especially on the Payroll side.

We are working hard to update our spreadsheets where we are tracking all our client’s qualified expenses to adhere to the new guidelines. 

Please contact us if you have any questions.

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