Last Friday night, the SBA released the PPP Loan Forgiveness application and related instructions. It was our hope that the radio silence from the SBA and US Treasury on the forgiveness piece meant that we would be getting guidance that would provide more answers. Instead, after being 20 days past their deadline, they’ve provided an extremely complex calculation, application, and more questions. The SBA did provide clarity on a few issues which we’ve summarized below. However, they also complicated the process further by issuing unexpected guidance that contradicts the intent of Congress. The SBA has stated “that they will also soon issue regulations and guidance to further assist borrowers.” We hope this is the case as we know that many of you are funded and are between a rock and a hard place. As of May 19^th, we are still waiting, and without this guidance, any of the information in the application is subject to change.

What’s in the application PDF?
The application has four sections and their related instructions:
1. PPP Loan Forgiveness Calculation Form
2. PPP Schedule A
3. PPP Schedule A Worksheet
4. PPP Borrower Demographic Information Form (optional)

How do you prepare the application?
Just an FYI, you actually complete the application backwards, starting with the Schedule A Worksheet and ending with the PPP Loan Forgiveness Calculation Form. While the actual application seems easy enough and is only a few pages long, the calculations required to complete every line are going to be extremely time consuming and require quite a bit of data manipulation. Each line will require a spreadsheet of information to come up with the amount requested.

What did they clarify regarding the forgiveness calculation?

• Gross wages will be limited to $15,385 per non-owner employee ($100,000 x 8/52 weeks).
• Owner compensation will be limited to the lesser of $15,385 or 8/52 of their 2019 wages.
  • “Owner” was a term the SBA had not used in previous guidance and was not defined in this application. Additional questions have already been raised regarding this issue so we are hoping the Treasury will be defining this term in its future guidance.
  • While inconsistent with prior interpretations, the application puts in question what exactly is forgivable for owners. Reading between the lines, some believe that amounts paid for owner’s health insurance and retirement benefits will not be forgiven. Hopefully more guidance will clarify this ambiguity.
• One full-time equivalent (FTE) is someone who works 40 hours per week (not the 30 hours we had originally thought based on prior SBA guidance).
  • You are limited to 1.0 FTE per employee, rounded to the nearest tenth. If someone works over 40 hours, he/she only counts as 1.0 FTE.
  • You have the option of using a simplified method where anyone who works less than 40 hours is counted as 0.5 while those working 40+ hours are kept at 1.0 FTE.
• The amount forgiven will be reduced if the average FTEs during the 8-week period was reduced compared to the average from 2/15/19 – 6/30/19 OR the average from 1/1/2020 – 2/29/2020 (the borrower chooses the time period).
  • The Borrower is exempt from this reduction if both of the following conditions are met: (1) the Borrower reduced its FTE employee levels in the period beginning February 15, 2020, and ending April 26, 2020; AND (2) the Borrower then restored its FTE employee levels by not later than June 30, 2020 to its FTE employee levels in the Borrower’s pay period that included February 15, 2020.
  • The Borrower is also exempt from this reduction if they (1) made a good-faith, written offer to rehire an employee during the Covered Period or the Alternative Payroll Covered Period which was rejected by the employee; and (2) any employees who during the Covered Period or the Alternative Payroll Covered Period (a) were fired for cause, (b) voluntarily resigned, or (c) voluntarily requested and received a reduction of their hours. Any FTE reductions in these cases do not reduce the Borrower’s loan forgiveness.
• The application allows for borrowers with a biweekly (or more frequent) payroll schedule to elect an Alternative Payroll Covered Period. This period begins on the first day of their first pay period after receiving the PPP Funds instead of the date the funds were received.
  • Adding to the complexity, if the borrower elects this alternate period, there may be other sections of the application that refer to “the Covered Period” only, which is different from the alternative.
• The application clarifies that costs incurred OR payments made qualify for forgiveness.
  • For payroll costs, that means if your pay date fell the day after you received your funds, that payroll is eligible for forgiveness. You also can include the wages earned through the end of your 8-week period. For example, if your pay period runs 6/1 – 6/8 with a pay date of 6/10 and your covered period ends on 6/5, you can include the gross wages from 6/1 to 6/5 assuming no other payroll restrictions apply.
  • For eligible non-payroll costs, if the payments are made in the covered period, they appear to qualify for forgiveness. The only exception is eligible mortgage interest which specifically excludes any prepayments.

What is still unknown at this point?

• As stated above, the definition of “owner” was not provided. They don’t clarify if this is anyone who has ownership in an entity, or owns more than 2%, more than 20%, or if constructive ownership rules apply.
• It is unclear what costs are included in the “owner’s” compensation line. Are health insurance and retirement benefits included in that amount? This would mean those benefits plus gross wages would be limited.
• The new guidance that allows costs incurred OR paid seems too good to be true and some are questioning if the SBA will change this yet again.
• It is unclear if they will later restrict payments made to retirement plans (i.e. employer profit-share contributions for 2019).

There are so many other nuanced and specific questions that we still need answers to. Because of this, we will be hosting a live Q&A session on the morning of Friday, May 22^nd.  Stay tuned for more details coming out via email.

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We know the SBA has not made this process easy and the lack of guidance is extremely frustrating for everyone. Our goal is to give you timely information and advice even with limited guidance. We’re here to help and hope you and your families are healthy and safe.