Sharing is caring!

Reading Time: 3 minutes

How to apply for PPP Loan Forgiveness

On May 15, Treasury released the Paycheck Protection Program Loan Forgiveness Application. This application provides insight related to questions on loan forgiveness. At the time of the release, Treasury also indicated that SBA will soon issue regulations and guidance to further assist borrowers.

A copy of the loan forgiveness application can be found here.

The key takeaways from the application are:

Covered Period: The covered period begins the date the borrower received the funds and ends 56 days later. The date of the funds is included in the number. The example used is a funding date of Monday, April 20 and the period ends on Sunday, June 14. 

Payroll Costs: Borrowers are eligible to include BOTH 1) payroll costs paid during the covered period (even if earned prior to the covered period), and 2) payroll costs incurred during the covered period but paid following the covered period. Payroll costs are considered paid on the date that paychecks are distributed or on the date the borrower originates the ACH transaction. They are considered incurred on the day the employee’s pay is earned.  Payroll costs incurred, but not paid during the last pay period of the covered period ARE eligible for forgiveness if paid on or before the next regular payroll date.

  • Standard Method:  In the example that includes a loan funding date of April 20th, under the standard method, payroll would include payroll costs paid between April 20 and June 14 (including amounts earned prior to April 20), as well as pay earned between April 20 and June 14 and paid on or before the employer’s next regular pay date following June 14.  
  • Alternative Payroll Method:  Borrowers with a bi-weekly (or more frequent) payroll may elect to calculate the payroll costs using the eight-week period that begins on the first day of their first pay period following the PPP Loan disbursement. This method would enable borrowers to avoid having to bifurcate any given payroll into “eligible” and “not eligible.” In the example from Treasury, a borrower has a loan funding date of April 20 and the first date of the next pay cycle of April 26. In the example, the borrower would then have the last day of the eligible payroll on Saturday, June 20 rather than on Sunday June 14. If the borrower elected the alternative payroll method, eligible payroll costs would include amounts paid between April 26 and June 20 (even if earned prior to April 26), and amounts earned through June 20 and paid after June 20 on or before the borrowers next regularly scheduled pay date.

Owner Payroll Costs: Owner payroll costs cannot exceed eight weeks’ worth of 2019 compensation for any owner-employee. There is no such limitation for payroll to non-owner employees.  

Employee Benefits: Payments for employee health insurance, retirement plans, and state and local unemployment taxes follow the methodology used for payroll costs.

Non-Payroll Costs: These costs include costs paid during the covered period (even if incurred prior to the covered period), as well as costs incurred during the covered period and paid on or before the next regular billing cycle date following the end of the covered period.

Eligible Utility Costs: Utility costs include business payments for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020 (“business utility payments”).

Average FTE: Average FTE is based on a 40-hour work week. For each employee, the average number of hours is used and then divided by 40 and rounded to the nearest tenth. The maximum for each employee is capped at 1.0. A borrower can make an election to use a 1.0 FTE for employees who work 40 hours or more and 0.5 for employees who work fewer than 40 hours.

FTE Reduction Safe Harbor #1: A borrower is exempt from the reduction in loan forgiveness based on FTEs if (1) the borrower reduced its FTE employee levels in the period between February 15, 2020 and April 26, 2020 and (2) the borrower then restored the FTE by no later than June 30, 2020 to its FTE employee levels in the borrowers pay period that included February 15, 2020.

FTE Reduction Safe Harbor #2: A borrower is exempt from the reduction in loan forgiveness based on FTEs if the FTE total on the last day of the covered period is equal to or greater than the FTE total on January 1, 2020. 

Documentation requirements: Specific documentation requirements are listed on page 10 of the application and include bank account statements, payroll statements from third party processors, receipts, cancelled checks, and account statements.

Questions regarding PPP Loan Forgiveness?

To learn more, visit the COVID-19 Resource section of our website or contact us at [email protected].