The Small Business Administration (“SBA”) has released the much-anticipated application and instructions for how Paycheck Protection Program (“PPP”) borrowers can seek loan forgiveness. A link to the application and instructions can be found here. While many business owners applied for PPP funds expecting to convert the PPP loan into a grant that didn’t require repayment (and was “forgiven”), questions lingered as to how exactly lenders and the SBA would determine whether borrowers met the terms for forgiveness. With the new release of the application, the SBA has indicated that borrowers should now be informed as to how to apply for forgiveness of their PPP loans.
The release includes an application, instructions and a worksheet that details how to calculate the amount of the loan that can be forgiven, together with a summary of costs eligible for forgiveness. The SBA also provides a list of documents borrowers have to submit with their forgiveness applications and a list of supporting documents that must be maintained by the borrower (but are not required for submission). 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 audit such files upon request. Notably, the application form asks whether borrowers received a loan in excess of $2 million as the SBA has indicated its intention to review loans over $2 million prior to allowing forgiveness.
The instructions help to clarify how forgiven costs are to be calculated, including several new matters of guidance. The SBA has indicated flexibility with the “incurred and paid” requirement for both payroll and non-payroll costs, clearly stating for the first time that such costs, if incurred but not paid during the borrower’s last pay period of the 8-week covered period, remain eligible for forgiveness if paid on or before the next regular payroll date.
The SBA had confirmed in prior guidance that the level of forgiveness would be reduced proportionally to the number of jobs cut or the amount by which salaries were reduced in excess of 25%. The worksheet instructions now reveal that full time equivalency is to be based on a 40 hour work week and shall be rounded to the nearest tenth (0.1). 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. The application also confirms that the SBA’s regulatory requirement that 75% or more of the borrowed funds be spent on payroll rather than allowable nonpayroll costs is not a bar to forgiveness eligibility but instead operates to reduce the amount of allowable forgiveness if not satisfied.
The SBA also says more guidance will be forthcoming to assist both borrowers and lenders as they begin the process. Downs Rachlin Martin remains attentive to these developments and will be offering a webinar to assist borrowers in understanding the forgiveness application process in the near future.