Last Friday, SBA released the Paycheck Protection Program (PPP) Loan Forgiveness Application and accompanying instructions.
While the application and instructions are welcomed, several questions remain. We anticipate further guidance and quite possibly additional legislation to address continued concerns. Key items contained in the application and instructions include:
Loan forgiveness will apply to eligible expenses paid and incurred during the 8-week period. This will allow borrowers to include eligible expenses that were accrued but not paid during the 8-week period thus increasing the amount of potential loan forgiveness. Accrued expenses must be paid on or before the next regular billing date to qualify for forgiveness.
An “Alternative Payroll Covered Period” may be used to track payroll costs. This alternative period begins on the first day of the first pay period following the PPP loan disbursement. For example, if loan proceeds were received on Monday, April 20 and the next pay period begins the following Monday – April 27, the alternative payroll period would run from April 27 – June 21. This alternative measurement period should eliminate the need to run a special payroll at the end of the 8-week period.
The alternative payroll period can only be used to measure payroll costs. Non-payroll costs (rent, mortgage interest, utilities) must be measured using the 8-week period starting on the date loan proceeds were received.
A certification contained within the application indirectly limits the amount of individual owner compensation eligible for loan forgiveness to the lesser of “eight weeks’ worth of 2019 compensation” or $15,385.
Rent expense includes lease payments on both real and personal property.
For purposes of determining any loan forgiveness reduction, a full-time equivalent employee (FTE) is measured individually using a 40-hour full-time base. For instance, an employee working 30 hours/week would equal .75 FTEs. An FTE cannot be greater than 1.0. A simplified FTE method is also allowed. Any employee working less than 40 hours/week is automatically measured at .5 FTEs. Presumably, the same FTE method must be used for both the covered period and the reference period.
The loan forgiveness application is quite involved, requiring the use of several detailed schedules. The paid and incurred provision, while advantageous, will add yet another layer of complexity. Maximizing loan forgiveness will require a thorough understanding of published guidance and attention to detail. The forgiveness application process should not be rushed!
BMM is well positioned to assist with the loan forgiveness application. Let our dedicated PPP task force guide you through the process. Please give us a call for more information.