On Friday 5/15, SBA released a PPP Forgiveness Application that is designed to educate borrowers on how to apply for PPP loan forgiveness. Additional guidance – for both borrowers and lenders – is still expected from the agency.
The application includes a worksheet that details how to calculate the amount of the loan that can be forgiven and provides a summary of costs eligible for forgiveness. The SBA also provided a list of documents borrowers have to submit with their forgiveness applications.
The document clarified a few items that have frustrated both borrowers and lenders since the program’s inception:
- The “Incurred vs Paid” Confusion
- Eligible Payroll Costs:
“Payroll costs are considered paid on the day that paychecks are distributed or the Borrower originates an ACH credit transaction. Payroll costs are considered incurred on the day that the employee’s pay is earned. 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.“
- Non-Payroll Costs: An eligible nonpayroll cost must be paid during the Covered Period OR incurred during the Covered Period and paid on or before the next regular billing date, even if the billing date is after the Covered Period.
- Eligible Payroll Costs:
- Alternative Payroll Covered Period: Allows the borrower to align PPP forgiveness with the payroll period.
“For administrative convenience, Borrowers with a biweekly (or more frequent) payroll schedule may 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 (the “Alternative Payroll Covered Period”).”
Note: The alternative covered period dates only apply to payroll. The “covered period” begins on the loan disbursement date.
- Average FTE Calculation:
“For each employee, enter the average number of hours paid per week, divide by 40, and round the total to the nearest tenth. The maximum for each employee is capped at 1.0. 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 may be used at the election of the Borrower.”
- Documents that Each Borrower Must Maintain but is Not Required to Submit
PPP Schedule A Worksheet or its equivalent and the following:
a. Documentation supporting the listing of each individual employee in PPP Schedule A Worksheet Table 1, including the “Salary/Hourly Wage Reduction” calculation, if necessary.
b. Documentation supporting the listing of each individual employee in PPP Schedule A Worksheet Table 2; specifically, that each listed employee received during any single pay period in 2019 compensation at an annualized rate of more than $100,000.
c. Documentation regarding any employee job offers and refusals, firings for cause, voluntary resignations, and written requests by any employee for reductions in work schedule.
d. Documentation supporting the PPP Schedule A Worksheet “FTE Reduction Safe Harbor.”
All records relating to the Borrower’s PPP loan, including documentation submitted with its PPP loan application, documentation supporting the Borrower’s certifications as to the necessity of the loan request and its eligibility for a PPP loan, documentation necessary to support the Borrower’s loan forgiveness application, and documentation demonstrating the Borrower’s material compliance with PPP requirements. The Borrower must retain all such documentation in its files for six years after the date the loan is forgiven or repaid in full, and permit authorized representatives of SBA, including representatives of its Office of Inspector General, to access such files upon request.
Refer to the PPP Forgiveness Application for more examples.