Paycheck Protection Program Forgiveness Application
Definition Clarification
Good news or bad news? Who knows, but at least we do now have the Paycheck Protection Program Forgiveness Application. While this is nice to have, I would be prepared for changes, especially as certain borrowers are advocating for changes that would be more realistic and helpful. In any case, SBA places the responsibility for accuracy on the borrower to accurately submit the information in the forgiveness application.
The SBA application has clarified a few of the definitions for us:
https://www.sba.gov/sites/default/files/2020-05/3245-0407%20SBA%20Form%203508%20PPP%20Forgiveness%20Application.pdf
Employees: The form does not provide much clarity on the term “employees” used in determining the number of employees later in the calculation portion of the form. However, the SBA states that the forgiveness reduction calculation uses Full-Time Equivalents (“FTE’s”) set at 40 hours a week later in the forgiveness calculation portion of the form. The form is silent on how borrowers should count employees when they do not use the traditional 40-hour week.
Covered Period: The forgiveness period is listed as eight weeks. This period is determined as 56 days from the date of the PPP loan distribution date. We saw earlier this week that the HEROES Act wishes to extend this period to 24 weeks. There is no mention of any potential extension of the Covered Period. This form now gives borrowers an option to calculate payroll costs using an “alternative payroll covered period”, if that alternative method better aligns with borrowers’ regular payroll cycles. Borrowers with a biweekly (or more frequent) payroll schedule may elect to calculate eligible payroll costs using the eight-week (56-day) period that begins on the first day of their first pay period following their PPP loan disbursement date (the “Alternative Covered Period”).
Rent and Mortgage expenses: The SBA clarifies that rent and mortgage expenses include both real and personal property. This allows borrowers to include payment besides leases for real property. The original definition was ambiguous as to whether or not it only covered real property leases.
Interest: Covered expense includes both real estate and personal property mortgage interest payments.
Utilities: The utility definition is now “payments for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access.” This definition is more expansive for borrowers and lenders on what can be included under utilities. Borrowers are required to submit documentation verifying the existence of such obligations prior to February 15, 2020. What documentation is required to prove transportation expense obligations, for example, remains unclear.
Timing of Eligible Expenses: The application allows for payroll expenses that are incurred but not paid during the forgiveness period in addition to actual expenses paid. Eligible non-payroll costs are actually spent in the forgiveness period.
Calculation Forgiveness: The forgiveness application form includes a step by step process for the calculation using employee salaries and costs. You must fill out the Schedule A with a list of employees, or you can generate the same information out your payroll system or spreadsheet. For self-employed borrowers, there is a separate line where you can put that cost, capped at $15,385 per owner/partner.
At this point, it would be good to start gathering the information. As we get closer, we will contact you with how we will actually begin the process of collecting the information. We are anticipating that there could be several changes, so stay tuned!