SBA ISSUES PPP LOAN FORGIVENESS APPLICATION
On Friday, May 15, 2020 the SBA and Treasury Department released the Paycheck Protection Program (“PPP”) Loan Forgiveness Application (which can be found here:
Loan Forgiveness
) providing more detail and giving Borrowers who received PPP funds more specific guidance on how loan forgiveness under the CARES Act will be determined. SBA Form 3508 includes instructions for completing the Loan Forgiveness Application, as well as a Schedule A (and Schedule A Worksheet) that calculates the portion eligible for loan forgiveness and a list of documents that each Borrower must submit with its Loan Forgiveness Application. Form 3508 also includes a voluntary Borrower Demographic Information Form that is optional for Borrowers to complete. Notably, the Loan Forgiveness Application addresses several outstanding questions that have been circulating since the PPP Loan Application process first opened, including:
1) The ability to elect an Alternative Payroll Covered Period for Borrowers whose PPP loan funding date does not align with their regular payroll.
One of the primary questions that arose after the initial Interim Final Rules were issued was how Borrowers were to calculate payroll for purposes of the loan when a Borrower might have accrued payroll costs that did not align with the date the loan funded and the corresponding 8-week period (e.g., a Borrower on a biweekly payroll whose loan funded in the middle of a payroll period). Form 3508 clarifies this issue and allows “Borrowers with a biweekly (or more frequent) payroll schedule to 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.” If a Borrower does elect to use the Alternative Payroll Covered Period, the Borrower must apply the Alternative Payroll Covered Period wherever there is a reference in the Loan Forgiveness Application to the “Covered Period or the Alternative Payroll Covered Period.” Importantly, however, if the Loan Forgiveness Application refers only to the “Covered Period” then the Borrower must apply the Covered Period only.
2) Clarification on the question of whether unused PPP loan funds may be returned without counting against the Borrower in the 75% payroll threshold.
The PPP Loan Forgiveness Calculation Form includes multiple alternatives for the amount of loan forgiveness and provides that it will be the smaller of:
i) the total amount of the PPP Loan,
ii) the amount of the PPP loan that was used for eligible payroll costs, divided by 0.75 (e.g., a $200,000 loan where only $75,000 is used for eligible payroll, divided by 0.75, would be $100,000), or
iii) the modified amount of the PPP loan that was used for eligible payroll costs reduced by any adjustments for FTE reductions or any Salary / Hourly Wage Reduction calculations.
So for Borrowers who previously had concerns that they might not use all of the PPP loan funds within the 8-week period or who were unsure of how loan forgiveness eligibility would be calculated if not all loan funds were used in the 75% to 25% ratio, the SBA has now made it clear that forgiveness eligibility will be available at some level to all borrowers who use a portion of the funds for the covered payroll expenses.
3) New Information and Methods to Calculate Average Full Time Employees for Purposes of Loan Forgiveness.
An unexpected clarification that is a part of the Instructions for the PPP Schedule A Worksheet is the SBA’s definition of how to calculate Average FTEs. Rather than use the anticipated 30-hour per week threshold that has been used in other federal legislation (such as the Affordable Care Act), the SBA has provided Borrowers with two options for calculating the Average FTE during the Covered Period or Alternative Payroll Covered Period. This definition is a departure from the original instructions on the PPP Loan Application, which instructed Borrowers to only include the number of FTEs on the application, without regard to part-time employees. Now, for purposes of loan forgiveness, Borrowers may choose to either:
i) enter for each employee the average number of hours paid per week, divide by 40 and round to the nearest tenth (with a cap of 1.0 for each employee), or
ii) use a simplified method that assigns a 1.0 for employees who work 40 hours or more per week and a 0.5 for employees who work fewer than 40 hours. While the simplified method may work to some Borrowers’ advantage, it is likely (but not yet expressly required) that the SBA will also require the Borrower to use the simplified method to calculate the Average FTE for the reference period if the Borrower elects to use the simplified method to calculate Average FTEs for the covered period and vice versa.
While not all questions have been answered in this Loan Forgiveness Application, it provides a great deal more clarity for Borrowers who are facing the end of their 8-week loan periods on the horizon in mid-June. Lewis Thomason continues to monitor updates and additional guidance as it is released to advise our clients as they navigate the evolving landscape of the CARES Act and its progeny.
