So, who's ready to put the Paycheck Protection Program behind them? Many certainly are! The SBA has just announced that PPP loan recipients are permitted to apply for forgiveness before their covered period has run its course. This rule applies both to those following the original eight-week covered period and to those who will use their loan over the 24-week period.

This does come with one important caveat, however. By applying for forgiveness before December 31, 2020, you forfeit the end-of-year safe harbor provision for restoring salaries and wages that is necessary to avoid a reduction in loan forgiveness. The IFR makes it clear that a more-than-25%-reduction in employees' salaries or wages must be accounted for over the entire eight-week or 24-week period if you apply for forgiveness early.

Here is an example to flesh this out:

A borrower is using a 24-week covered period. This borrower reduced a full-time employee's weekly salary from $1,000 per week during the reference period to $700 per week during the covered period. Because the employee continues to work full time (an FTE of 1.0), the first $250 (25% of $1,000) is exempt from reduction. Thus, of the $300 decrease in the employee's weekly salary, $50 ($300 - $250) per week must be considered as non-forgivable. By electing to request loan forgiveness before the end of the 24 weeks while this salary reduction is present, you must calculate the amount of reduced salary through to the end of the 24 weeks. In this case, you would multiply $50 as indicated above by the full 24 weeks and report a $1,200 non-forgivable reduction on the loan forgiveness application.