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Paycheck Protection Program Loan Forgiveness Application Released

Paycheck Protection Program Loan Forgiveness Application Released

Service Businesses  |  Healthcare  |  Nonprofit  |  Manufacturing & Distribution  |  Government Contractors  |  Construction & Real Estate

The Small Business Administration (SBA) released information on how borrowers can apply for forgiveness for Paycheck Protection Program (PPP) loans. The Loan Forgiveness Application, which was released on May 15, 2020, includes instructions for borrowers on how to apply for forgiveness through their lender and how to perform the calculations required by the CARES Act to confirm eligibility for loan forgiveness.

The application also includes new clarification on some remaining questions about PPP loan forgiveness. With that said, some questions remain unanswered, and we do expect the SBA to release additional guidance in the weeks to come.

Covered Period vs Alternative Payroll Covered Period

Prior to this guidance, borrowers operated under the understanding that their eight-week forgiveness period began the same day as the loan disbursement date. For example, if the borrower received their loan proceeds on April 20, the first covered date would be April 20 and the last day would be June 14.

The new guidance allows borrowers with a biweekly (or more frequent) payroll schedule to elect to calculate costs under the alternative payroll covered period. This allows borrowers to begin their forgiveness period on the first day of their first pay period following their PPP loan disbursement date. For example, if the borrower received their loan proceeds on April 20 and the first pay period following the disbursement is April 26, the first covered date would be April 26 and the last day would be June 20.

Eligible Payroll Expenses

Borrowers are generally eligible for payroll costs that were paid and incurred during the eight-week forgiveness period. According to the SBA, payroll costs are considered paid on the day that paychecks are distributed or the borrower originates the ACH credit transaction. Payroll costs are incurred the day that the employee’s pay is earned (i.e. the day the employee works).

Payroll costs that are incurred but not paid during the last pay period of the eight-week forgiveness period are eligible for forgiveness if paid on or before the next regular payroll date. For example, if your employees work on the last day of the coverage period, the incurred costs will be forgiven even though you may not officially pay that payroll cost until a week later due to your company’s payroll schedule.

The total cash compensation eligible for forgiveness for one individual employee may not exceed an annual salary of $100,000 as prorated for the covered period.

Eligible Nonpayroll Expenses

Any eligible nonpayroll costs must be paid during the eight-week forgiveness period or incurred during the forgiveness period and paid on or before the next regular billing date (even if that date is outside of the forgiveness period). Eligible nonpayroll costs cannot exceed 25% of the total forgiveness amount.

According to the SBA, nonpayroll costs eligible for forgiveness include:

  • Covered mortgage obligations: payments of interest (not including any prepayment or payment of principal) on any business mortgage obligation on real property incurred before February 15, 2020
  • Covered rent obligations: business rent or lease payments pursuant to lease agreements for real or personal property in force before February 15, 2020
  • Covered utility payments: business payments for a service for the distribution of electricity, gas, water, transportation, telephone or internet access for which service began before February 15, 2020

Read More About the PPP

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Published on May 17, 2020