PPP Loan Forgiveness Application and Guidance

[Update: 6/19/20] The following information is based on current SBA and Treasury guidance released June 17 and has been updated to align with the Paycheck Protection Program Flexibility Act signed by the President, Friday, June 5. 

The SBA released long-awaited PPP loan forgiveness guidance and application instructions on Friday, May 15.  Two new interim final rules have since been released on May 22 to address requirements for loan forgiveness and PPP loan review procedures

You can download the forgiveness application here, and here are highlights from the guidance:


Here’s what you need to know 

Simplified 24-week period

Borrowers with a bi-weekly or more frequent pay cycle may elect to use an alternative payroll covered period. The alternative payroll covered period will begin on the first day of the first payroll cycle during the covered period and continue for 24 weeks after.


Incurred vs. Paid

Eligible costs paid and incurred during the covered period are eligible for forgiveness. To qualify for forgiveness, incurred costs must be paid on or before the next regular billing date, even if that date is outside of the 24 week covered period.


Bonuses, Hazard Pay, & Furloughed Employees 

The Interim Final Rule clarifies that bonuses and hazard pay are eligible for forgiveness, as are salaries, wages, and commissions paid to furloughed employees.


FTE Reduction Safe harbor

Employees who are fired for cause, voluntarily resign, request reduced hours, or refuse rehire during the 24-week covered period or alternative payroll covered period will still count as an FTE. This will eliminate loan forgiveness penalties for FTE reductions outside of the borrower’s control.

Borrowers will also be allowed to adjust FTE if they are unable to find qualified employees or are unable to restore business operations to pre-COVID-19 levels due to COVID-19 related operating restrictions.

The Interim Final Rule adds a requirement for borrowers to notify the state unemployment office of an employee’s rejected offer within 30 days of that rejection.


PPP Review Procedures

The Interim Final Rule released May 22 clarifies PPP review procedures and borrow and lender responsibilities. Notable details of the rule include:

  • The SBA may review any PPP loan regardless of size to determine eligibility under the CARES Act
  • Borrowers may appeal SBA decisions within 30 days of receipt
  • Lenders must issue a decision on loan forgiveness within 60 days receiving a completed application. The SBA will then have 90 days to review the loan forgiveness application.
  • Borrowers may be asked questions by the SBA and lenders
  • Lenders will not be paid their fees for any PPP loans deemed ineligible by the SBA 


FTE Defined and Simplified 

The SBA has defined full-time equivalents as employees working at least 40 hours or a group of employees accumulating 40 hours. To make it even easier the SBA created a simplified method to calculate FTEs: each employee working at least 40 hours a week equals 1 FTE; each employee working under 40 hours a week equals 0.5 FTE.

Alternatively, borrowers can enter the average number of hours paid per week for each employee during the Covered Period or the Alternative Payroll Covered Period, divide by 40, and round the total to the nearest tenth with the maximum capped at 1.0. 


December 30 Date Confirmed 

Regardless of the 24-week period chosen, reduced FTEs and pay rate reductions in excess of 25% (for employees earning less than $100k) must be restored by the end of the 24-weeks covered period or December 30 to avoid penalization. 


New Forgiveness Calculation

The new guidance provides for the lesser of three potential forgiveness amounts. The lesser total is what you will submit as your forgiveness amount.

Potential forgiveness amounts

  • Modified Total: Payroll costs + non-payroll costs - total hourly/salary wage reductions * FTE reduction quotient 
  • PPP loan amount
  • Payroll costs / 0.60



Owner Compensation Increases Prohibited 

Owner compensation cannot exceed $15,385 or the 24-week equivalent of their applicable 2019 compensation during the 24-week covered period, whichever is lower.


Documents Required for Forgiveness Application

When submitting your forgiveness application there are some documents you are required to submit and some you are required to maintain. You can find the detailed list of documents in the forgiveness application but you can expect to prepare:

  • PPP Loan Forgiveness Calculation Form
  • PPP Schedule A 
  • Payroll documentation:
    • Bank Statements or payroll reports
    • Tax forms
    • Receipts or account statements documenting employer contributions to health insurance and retirement plans
  • FTE documentation 
    • Payroll tax filings
    • Employee wage reportings or unemployment insurance tax filings
  • Nonpayroll documentation
    • Documentation verifying the existence of the obligations/services prior to February 15, 2020 and eligible payments from the Covered Period

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