Insights 5/20/2020

As you may have heard, late on Friday, the Small Business Administration and Treasury Department released the application (application and instructions for loan forgiveness) that borrowers will use to seek forgiveness for Paycheck Protection Program (“PPP”) loans, along with detailed instructions for its completion. The 11-page application contains measures that will benefit borrowers, including an option that lets small businesses calculate payroll costs using an “alternative” eight-week covered period that likely aligns more closely with their regular payroll cycles. It also includes an exemption from the loan forgiveness reduction for borrowers who have made “a good-faith, written offer to rehire workers that was declined.” As we’ve noted previously, you’ll want to make sure that you work closely with your lender in preparing and submitting this application.

In addition, we finally received some long-awaited guidance on one of the more frequent questions that we receive: borrowers will be able to count any payroll and eligible nonpayroll expenses incurred—but not paid—during the covered period, as long as they are paid by the next regular payroll or billing date. As many of you know, there had been significant concern that only expenses that were actually paid during the covered period would be allowed to count toward forgiveness. This clarification puts those concerns to bed.

The application also includes guidance on how to calculate a reduction in the forgiveness amount if you spent less on payroll during your covered period than you did during the first quarter. The reduction would be deducted from the forgiven amount, though there is an exemption if you can show that employees rejected a good faith offer to rejoin your company.

Also, there is an automatic safe harbor from any loan forgiveness reduction if you can show that by June 30, you restored your workforce to the level that was in place on Feb. 15. And, finally, the agencies’ guidance and application comes two days after they issued a blanket safe harbor for PPP loans of less than $2 million.

Our national association, NAPEO, has put together the attached document that is a summary of the application. Given that the application and instructions are complex, this document may help provide you with additional information and insight. Also, at this time, Congress and the administration are currently discussing extending the 8-week period of these loans to something longer so that borrowers can more easily ensure that they can use at least 75% of the loan proceeds on payroll expenses.

Also, remember that reports are available in RMI Intel to assist with SBA PPP loan forgiveness calculations.

Finally, and as mentioned above, please be sure that you work closely with your lender on all issues related to your loan, including the loan forgiveness. Ultimately, it will be your lender that determines whether your loan is entirely forgivable or not.