Article

SBA releases updated PPP loan forgiveness application

June 22, 2020 · Authored by Paul DillonMichelle HobbsMike Schiavo, Pat Balthazor

On June 17, 2020, the Small Business Administration (SBA) released an updated version of the Paycheck Protection Program (PPP) loan forgiveness application, reflecting changes made by the Paycheck Protection Program Flexibility Act of 2020 (the Flexibility Act) as well as previously issued interim final rules. In addition, a streamlined version of the application was released for use by borrowers meeting certain requirements.

Key takeaways

• The length of the alternative payroll covered period available to borrowers with a biweekly (or more frequent) payroll cycle was updated to 24 weeks. If used, this period would begin on the first day of the first pay cycle that follows the loan disbursement. Borrowers who received their loan prior to June 5, 2020, can elect to use the eight-week alternative payroll covered period available under previous guidance.
• The limit on the amounts that can be forgiven for compensation paid to partners in a partnership or owner-employees (including self-employed individuals) was updated to the lesser of $20,833 or the 2 ½ month equivalent of their 2019 compensation across all businesses, for borrowers using a 24-week covered period.
• A formal definition of “owner-employee” for the above purpose is not provided, however, the revised application does refer to “owner-employees of an S-corporation.” Whether additional individuals would be included in this definition is uncertain.
• The determination of the maximum forgiveness amount is updated to be the lesser of the following:
  1. Total eligible costs paid or incurred during the covered period, less any reductions required for the borrowers’ reductions in employees’ salaries or full-time-equivalent (FTE) employees,
  2. PPP loan amount, or
  3. Eligible payroll costs paid or incurred during the covered period divided by 60% (was previously 75%).
• The FTE reduction safe harbor was updated to account for the exemption from a reduction in forgiveness added by the Flexibility Act. This exemption is available to borrowers who reduced their FTEs, but can document in good faith they were unable to operate at pre-COVID-19 levels (due to compliance with government health and safety guidelines).
• The shorter version of the application can be used by borrowers who did not have employees at the time they applied for their loan, or who did not reduce their FTEs or employees’ pay during the covered period. Borrowers who did reduce their FTEs, but can attest they were unable to operate at pre-COVID-19 levels (due to compliance with government health and safety guidelines, as described above) are also eligible to use the streamlined form. These borrowers would not be required to calculate any forgiveness reductions and their loan forgiveness would be calculated as the lesser of: