PPP Loan Forgiveness Application & Guidance Released
Any business that received a loan under the Paycheck Protection Program has been eagerly awaiting guidance on the loan forgiveness process. On May 15, 2020, the Treasury and Small Business Administration (SBA) issued long-awaited information on PPP loan forgiveness, including the application for forgiveness and relevant instructions. This includes the introduction of a new Alternative Covered Period, various documentation requirements, and much more. To provide clarity, Clayton & McKervey has provided a summary of key points below.
- New Alternative Covered Period – There is now an Alternative Covered Period which borrowers may leverage when calculating loan forgiveness. Since some companies issue payroll bi-weekly or even more frequently, they are now allowed to calculate eligible payroll costs using the 8-week period that begins on the first day of the first pay period following the loan disbursement date. This means if a borrower received funds on April 6th, but the first day of the pay period following disbursement is April 10th, then the first day of the Alternative Covered Period would be April 10th and the last day would be June 11th.
- Eligible Payroll Cost Determination – It is known that borrowers are generally eligible for forgiveness for payroll costs paid and incurred during the Covered or Alternate Covered Period. However, the guidance clarified that payroll costs are considered paid on the day paychecks are distributed or an ACH transaction is initiated. Since payroll costs are considered incurred on the day the pay is earned, costs incurred but not paid during the last pay period before the end of the Covered or Alternate Covered Period are also eligible for forgiveness if paid on or before the next regular payroll date. Otherwise, all payroll costs must be paid during the Covered or Alternate Period.
- Required Payroll Expense Documentation – As part of the Loan Forgiveness Application, borrowers must submit the following payroll documentation:
- Bank statements or payroll service reports documenting the amount of cash compensation paid to employees.
- Tax forms for the periods that overlap with the Covered or Alternate Covered Period, including payroll tax filings (IRS Form 941), and state quarterly business and individual employee wage reporting and related unemployment insurance tax forms.
- Any receipts, canceled checks or account statements showing the amount of employer contributions to health insurance and retirement plans included in the forgiveness amount.
- Required Nonpayroll Expense Documentation – Similar to payroll, nonpayroll qualifying expenses incurred during the covered period but paid after the Covered period qualify for forgiveness if paid before the next billing cycle for that expense. Borrowers must also submit verification showing the existence of these expenses prior to February 15, 2020, and payments made, including:
- Business mortgage interest payments, which should include a copy of the lender amortization schedule and canceled checks verifying payment.
- Business rent or lease payments, which should include a copy of the current lease agreement and receipts/canceled checks verifying payment.
- Business utility payments, including copies of invoices from February 2020 and evidence of payments made including canceled checks or payment receipts.
- $100K Salary Cap – The guidance also clarifies the $100K cap by stating the total amount of cash compensation eligible for forgiveness may not exceed an annualized salary of $100,000, as prorated for the Covered or Alternate Covered Period. This means that loan forgiveness for cash compensation is limited to $15,385 per employee.
- FTE Reduction Safe Harbor – The Safe Harbor program is designed to provide relief to borrowers who were not able to maintain FTEs for reasons beyond their control. This includes any position for which a written offer to rehire an employee through June 30, 2020, was rejected, and those who were fired for cause, voluntarily resigned, or requested and received a reduction in work hours. In these situations, the new guidance makes it clear that such a reduction does not limit the borrower’s loan forgiveness amount.
- Required FTE Documentation – At the election of the borrower, the following FTE documentation showing the average number of FTE employees on the payroll per month between February 15, 2019, and June 30th, 2019, or January 1, 2020, and February 29, 2020, should be provided. The selected time period must match the period used to complete PPP Schedule A, Line 1. Acceptable documentation includes payroll tax filings, state quarterly business, and individual employer wage reports, and unemployment insurance tax filings. The FTE measurement is 40 hours, with any employee working less than 40 hours rounded to the nearest tenth. An alternate measurement is to measure any employee working less than 40 hours at .5 FTE.
The recently issued guidance provides important details borrowers need to prepare for loan forgiveness. Although we expect the SBA to issue more updates in the coming weeks, there is plenty of new information to get borrowers started. If you have questions about the information outlined above or need help with loan assistance support, Clayton McKervey can help. Click here to contact us. We look forward to speaking with you soon.