The SBA has released a new application form for forgiveness of the Paycheck Protection Program (PPP) loans. The instructions provide some clarity regarding the Paycheck Protection Program Flexibility Act of 2020 that was signed by the president on June 5th 2020. The most significant changes were the extension of the eight week covered period to twenty four weeks and the reduction of the payroll requirement from 75% to 60%. Borrowers can choose whether to use the eight week or twenty four week periods.

The interpretation by some that the 60% payroll requirement was a "cliff" is not correct. This means failure to have 60% of your loan amount in eligible payroll costs will not cause the borrower to lose all forgiveness. Forgiveness will be prorated so that payroll will make up 60% of the forgiven amount.

One of the key takeaways from the updated instructions is the individual limitation for payroll costs ($100,000 annualized) increased substantially with the longer covered period ($15,385 for the 8 week covered period and $46,154 for the 24 week covered period). The limitation for owners (owner-employees, self-employed individuals, or general partners) using a 24 week covered period is capped at $20,833 or the 2.5 month equivalent of their applicable compensation in 2019. For borrowers using an 8-week covered period the cap is $15,385 or the eight week equivalent from 2019. The owner payroll limitation prevents the borrower from increasing the owners pay in 2020, however there are no similar rules related to family members or other related parties.

The forgiveness amount can be reduced by a Salary/Hourly Wage Reduction or by a Full Time Equivalency (FTE) Reduction Calculation.

  • The Salary/Hourly Wage reduction only applies if an employee's salary or rate was reduced. It does not apply if an employee's total pay reduced because of reduced hours.
  • The FTE reduction still applies, however it includes some notable exceptions. There is still an exception if the FTEs reduced but were later restored by the date the forgiveness application is submitted. There is now an additional exception if the borrower was unable to operate at the same level of business activity due to compliance with requirements of certain government agencies for social distancing and other safety requirements related to COVID-19. This new exception provides much needed relief for businesses that have had to close or alter their business to comply with government mandates.

There is an EZ application form for borrowers who have no employees or did not reduce their FTE count or meet one of the exceptions to the FTE rules. It is essentially the same application without the FTE forms.

Applications will be submitted through your lender many of whom are expected to create online portals. At this point, most lenders are not ready to accept applications for forgiveness. Documentation will need to be submitted to the lender with the application including payroll reports, payroll tax forms, lease agreements, cancelled checks and invoices for payment of utilities, health insurance and retirement benefits. Additional documentation is required to be maintained by the borrower, including documentation of Wage/Salary information and documents supporting FTE exceptions.

With the changes, most businesses should have no issue attaining full forgiveness. If restrictions can be lifted in the near term, we hope that these funds will allow small businesses to recover quickly.

Again, thanks to Fenstermacher and Co. for the information in this article.