Small Business Administration (SBA) Releases Paycheck Protection Program (PPP) Loan Forgiveness Application, Additional Forgiveness Guidance to Follow
Late on Friday, May 15, 2020, the U.S. Small Business Administration (SBA), in consultation with the U.S. Treasury Department, released its Paycheck Protection Program (PPP) loan forgiveness application form (Application) for use by PPP borrowers seeking forgiveness of some or all of their PPP loan following the conclusion of their eight-week forgiveness period. While the SBA’s press release announcing the availability of the Application confirms that additional forgiveness-related regulations and guidance will be forthcoming, the Application itself gives PPP borrowers plenty to unpack and consider in the meantime.
At a high level, the 11-page Application, which includes a series of worksheets and detailed instructions, does provide borrowers with a certain amount of new flexibility to plan and manage toward maximizing their loan forgiveness. However, the Application also requires additional borrower certifications and imposes extensive documentation submission and long-term document retention requirements. These latter requirements underscore the need for all PPP borrowers to develop and retain organized, audit-ready files in support of their PPP eligibility, “need” certifications and use of loan proceeds.
Among the key takeaways for PPP borrowers based on our initial review of the Application:
- Payroll Schedules: The Application accounts for the fact that borrowers’ payroll dates are unlikely to align precisely with their eight-week forgiveness periods and gives borrowers some flexibility to ensure they receive 56 days’ worth of payroll relief through use of an “Alternative Payroll Covered Period.” This should reduce the need for borrowers to implement accelerated or “stub” payroll periods.
- Mortgage Interest / Rent / Utilities: Similar to payroll schedules, there is an acknowledgment that mortgage interest, rent and utilities may be incurred during the eight week covered period but may not be paid until a regular billing date after the covered period. The Application provides some timing flexibility for these payments to be made on their regular schedule and still be eligible for forgiveness.
- Personal Property Mortgage Interest / Rent: The Application states unambiguously that covered mortgage and rent payments on personal property (not just real estate) may be included as forgivable non-payroll costs.
- FTE Employee Calculations: The Application bases full-time equivalent (FTE) employment on a 40-hour work week (many borrowers had anticipated a 30-hour standard). The Application also confirms that borrowers may include “fractional” employees in their FTE employee calculations (i.e., an employee who works 20 hours/week would count as 0.5 FTEs). That said, no individual may count for more than 1.0 FTE (i.e., somebody who works 60 hours/week would still count as only 1.0 FTE).
- June 30 “Safe Harbor”: The Application does not impose any “tail” obligations on borrowers who rehire employees and reinstate compensation levels by June 30. However, the language in the application does seem to indicate that employers must hire all the way back up to February 15 levels to receive the benefit of this June 30 “safe harbor” (i.e., no “partial credit” for partial rehiring under this “safe harbor”).
- Employee Reductions: Under the Application, employees terminated for cause will not count against a borrower’s FTE reduction calculations, nor will employees who voluntarily resigned or requested and received a reduction in working hours. The same is true for former employees who decline a written offer of rehire, consistent with FAQ 40 previously issued by the SBA.
- Further SBA Guidance: The Application states that eligibility for loan forgiveness will be determined based on SBA rules and guidance issued through the date of the forgiveness application, suggesting SBA may seek to apply some rules and guidance retroactively.
- Certifications: The Application requires additional certifications regarding the borrower’s forgiveness request and the veracity of information provided, among other things. As with the original PPP loan application certifications, these forgiveness-related certifications, if falsely made, create the potential for civil and/or criminal penalties.
- Documentation Submission and Retention Requirements: The documentation requirements (both for the initial submission of the Application and ongoing record retention obligations) are extensive. A borrower must maintain its entire PPP support file for at least six years for potential review by the SBA or other government bodies.
- Additional Information: SBA reserves the right to request additional information from borrowers and, if not provided, may determine that a borrower was PPP-ineligible or decline loan forgiveness on that basis.
While these key takeaways do not address many of the complex forgiveness questions raised by borrowers, they provide a starting point for businesses to firm up staffing plans, timing of payments for forgivable expenses and documentation submission and retention requirements. Undoubtedly, more guidance will be needed to clarify aspects of the Application and fill in the remaining gaps (which are meaningful). The Miller Johnson team will continue to update clients regarding key developments as more information and guidance becomes available.
In addition, we encourage borrowers to view a replay of our most recent PPP-related webinar (Be PPP Prepared: Compliance, Audit & Enforcement Readiness) here: https://youtu.be/GsUvMHMS7fY