On May 15, 2020, the U.S. Small Business Administration (SBA) announced its long-awaited forgiveness rules through the release of the PPP Loan Forgiveness Application. Through a series of instructions and worksheets, employers now have a much better understanding of how forgiveness will work, although the SBA application still leaves important questions unanswered.
The CARES Act and original guidance had noted that to be forgiven, payroll costs and non-payroll costs had to be both incurred and paid during the covered period.
That has changed in the PPP Loan Forgiveness Application, which states that payroll costs may be incurred or paid during the covered period, and that non-payroll costs may be incurred or paid during the covered period.
In either case, the payroll costs and non-payroll costs may be paid outside of their applicable periods as long as they are paid on or before the first applicable due date immediately following the end of the applicable period for such costs. For additional information, see our previous post Paycheck Protection Program FAQ from the SBA: What you need to know.
The PPP Loan Forgiveness Application did not clarify the following questions:
• What is the deadline for submission of the PPP Loan Forgiveness Application?
• Are bonuses able to be counted as cash compensation?
• What type of transportation, telephone or internet access payments qualify as a covered utility for purposes of loan forgiveness?
• What if the borrower’s business was subject to local orders that required it to be closed and the borrower was not able to pay its employees during the covered period?
• Are mortgage obligations only those obligations evidencing indebtedness used specifically to finance the purchase of real or personal property, or do they also include obligations secured by the borrower’s real or personal property where the use of the proceeds of such debt was not limited to such purchase (i.e., for a new acquisition or working capital)?
• How do the salary/hourly wage reduction safe harbor and the FTE reduction safe harbor work when the June 30, 2020, safe harbor date is during a borrower’s covered period?
• How does one compare employee salary/hourly wages and calculate FTEs if a borrower is acquired during its chosen covered period?
Borrowers now have a better understanding of the documentation needed to apply for PPP loan forgiveness and what the procedure will require, but the long-awaited SBA guidance on forgiveness still leaves unanswered questions that some borrowers will have as they prepare their applications. For more information on the loan forgiveness application and to view and download the application, please visit sba.gov.
If you have any questions about this updated information, we are available to you as always via phone and email. Please do not hesitate to reach out, we’re here for you. We are continuing to closely monitor the evolving impact of COVID-19, and are continually updating our resource page with the latest information.