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Paycheck Protection Program Loan Forgiveness Application and Guidance
On May 15, 2020, the Small Business Administration (“ SBA ”) released the Paycheck Protection Program Loan Forgiveness Application (“ Forgiveness Application ”). The Forgiveness Application includes detailed instructions for borrowers on how to calculate the loan forgiveness amount under the Paycheck Protection Program (“ PPP ”). The instructions include new guidance that may help some clients avoid a reduction of the amount of their PPP loan that will be forgiven. This client alert summarizes certain important elements of the Forgiveness Application.

The Forgiveness Application consists of the following four components:

  1. PPP Loan Forgiveness Calculation Form;
  2. PPP Schedule A;
  3. PPP Schedule A Worksheet; and
  4. PPP Borrower Demographic Information Form (Optional).

Only documents listed in (1) and (2) above have to be submitted to the lender.

Important definitions :

  1. Covered Period: 8 weeks (56 days) of the PPP loan. First day of the Covered Period must be the same as the PPP loan disbursement date.
  2. Alternative Payroll Covered Period: 8 weeks (56 days) from the date of the first pay period following the PPP loan disbursement date. Borrowers with a biweekly or more frequent payroll schedule may elect this method to calculate their eligible payroll costs.

Costs Eligible for Forgiveness : Borrowers are eligible for loan forgiveness for the following costs:

  1. Payroll costs paid and incurred during the Covered Period or the Alternative Payroll Covered Period. 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;
  2. Mortgage obligations (excluding any prepayments or payment of principal) on real or personal property incurred before February 15, 2020;
  3. Rent obligations for real or personal property pursuant to lease agreement in force before February 15, 2020; and
  4. Utility payments for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020.

Note : Non-payroll costs (detailed in point (2), (3) and (4) above) are either required to be paid during the Covered Period, or incurred during the Covered Period and paid before the next regular billing date, even if such date is after the Covered Period. Non-payroll costs cannot exceed 25% of the total forgiveness amount.

Reductions to the Loan Forgiveness Amount : The loan forgiveness amount may be subject to certain reductions, as set forth in the PPP Schedule A, and summarized below:

  • Average Weekly Full-Time Equivalency (“FTE”): The actual loan forgiveness amount may be reduced if the Borrower’s average weekly FTE during the Covered Period (or the Alternative Payroll Covered Period) was less than during the Borrower’s chosen reference period.

For purposes of the FTE calculation, the Borrower can elect one of the following reference periods:

  • February 15, 2019 to June 30, 2019; or
  • January 1, 2020 to February 29, 2020; or
  • In the case of seasonal employers, either of the preceding periods or a consecutive twelve-week period between May 1, 2019 and September 15, 2019.

The borrower may be exempt from such FTE related loan reduction if the Borrower’s case is eligible for the FTE Reduction Safe Harbor, or FTE Reduction Exceptions as detailed below:

  • FTE Safe Harbor Exemption: The borrower will be eligible for this exemption if the following conditions are met:

  •  Borrower reduced its FTE employee levels in the period beginning February 15, 2020, and ending April 26, 2020; and
  • The borrower then restored its FTE employee levels by not later than June 30, 2020 to its FTE employee levels in the borrower’s pay period that included February 15, 2020.

  • FTE Reduction Exceptions: The borrower will be eligible for this exemption if the FTE reductions were related to:

  • Any positions for which the borrower made a good-faith, written offer to rehire an employee during the Covered Period or the Alternative Payroll Covered Period that was rejected by the employee; or
  • Any employees who during the Covered Period or the Alternative Payroll Covered Period (x) were fired for cause, (y) voluntarily resigned, or (z) voluntarily requested and received a reduction of their hours.

  • Salary/ Hourly Wage Reduction: The actual loan forgiveness amount may be reduced if the salary or hourly wages of certain employees, where the salary or hourly wage of each employee was reduced by 25% or more, during the Covered Period or the Alternative Payroll Covered Period was less than during the period from January 1, 2020 to March 31, 2020. However, if the borrower restores the salary/hourly wage levels prior to June 30, 2020, the loan amount will not be subject to a reduction. 
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This client alert is intended to inform you of developments in the law and to provide information of general interest. It is not intended to constitute legal advice regarding a client's specific legal issues and should not be relied upon as such. This client alert may be considered advertising under the rules of the Massachusetts Supreme Judicial Court. This client alert is for informational purposes only. It is not intended to be a solicitation or offer to provide products or service to any individual or entity, including to a "data subject" as that term is defined by the European Union General Data Protection Regulations. ©2020 Mirick, O'Connell, DeMallie & Lougee, LLP. All Rights Reserved.