May 18, 2020Share:
The SBA and Treasury released official guidance regarding Paycheck Protection Program (“PPP”) loan forgiveness in the form of an application with detailed instructions. The Small Business Administration (“SBA”) said they will also issue regulations and guidance to further assist borrowers as they complete their applications. Lenders will also receive further guidance on their responsibilities.
The application requires the borrower to make several certifications. It also provides standardized worksheets for some of the more complicated forgiveness calculations.
Some questions which have plagued borrowers and their advisors are answered in the instructions. Further, several measures are introduced in the application to reduce compliance burdens and simplify the process for borrowers, including:
• Options for borrowers to calculate payroll costs using an “alternative payroll covered period” that aligns with borrowers’ regular payroll cycles
In other words, if your payroll period doesn’t align exactly with the covered period of the loan, borrowers can elect an alternative period. This alternative allows borrowers to get a full eight weeks of payroll that is eligible for forgiveness—without having to make arrangements for a special payroll within the eight week covered period
• Flexibility to include eligible payroll and non-payroll expenses paid or incurred during the eight-week period after receiving their PPP loan
Eligible non-payroll costs incurred during the covered period may be included in the forgiveness calculation, as long as they are paid on or before the next billing date. This applies even if that date falls after the end of the covered period
The guidance provides step-by-step instructions on how to perform the calculations required by the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act to confirm eligibility for loan forgiveness:
• Borrower-friendly implementation of statutory exemptions from loan forgiveness reduction based on rehiring by June 30
• Addition of a new exemption from the loan forgiveness reduction for borrowers who have made a good-faith, written offer to rehire workers that was declined
The submitted forgiveness application must be accompanied by substantial documentation. There is also a list entitled “Documents that Each Borrower Must Maintain but is Not Required to Submit.” The documentation requirements take up one full page of the guidance. As gathering this information may be time consuming, you should familiarize yourself with the list and begin to make arrangements for collecting the documents.
Other questions still remain which, we hope, will be answered in subsequent regulations and guidance, including:
• Do retirement benefits include only amounts attributable to the covered period?
• Are owner benefits excluded from forgiveness costs and who is considered an owner for this purpose?
• Are bonuses paid to employees during the covered period includible in the forgiveness amount and does that include bonuses which were accrued before the covered period but not yet paid?
• Do financing leases on personal equipment count as rent?
• With respect to utility payments, what is included in transportation?
• Can prepaid expenses such as rent be included in the forgiveness amount?
• What happens if the eight-week period ends after June 30?
One question, which was the subject of much speculation, concerned whether “full-time equivalent” (“FTE”) means 30 or 40 hours per week. The instructions clearly state that at present, an employee who works at least 40 hours per week is 1 FTE. There is also a simplified calculation 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 that may be used at the election of the borrower.
Please feel free to contact your Wilkins Miller advisor with any questions.