Over the weekend, the SBA released the Paycheck Protection Program (PPP) Loan Forgiveness Application. While the application is not the full guidance we have been awaiting, it does give us significant insight into the direction the SBA is headed with forgivable expenses as well as the process the SBA will use when requesting forgiveness.
Key aspects expected to change: Unfortunately, the Loan Forgiveness Application has been released prior to the SBA releasing additional guidelines defining key aspects of the PPP loan as well as prior to Congress voting to extend the 8-week time period and payroll percentages. We are expecting a change in at least one of those two aspects, which would significantly change the application. Some of the items noted in the loan forgiveness application:
- Expenses do NOT have to be incurred AND paid in the 8 weeks: this is the most important fact in the application and is a change from the CARES Act and previous guidance. The prior language said “incurred AND paid” — the ability to include both will make it much easier to meet full loan forgiveness.
- Payroll effect? It appears payroll paid for wages earned prior to the 8-weeks will qualify for loan forgiveness; however, the SBA does not state how far in arrears the payroll could have been earned. And, it does not mention a limit on the amount of bonuses or increased pay you are allowed to pay your employees. As expected, independent contractor pay still does not qualify.
- Rent effect? It appears all rent payments “paid or incurred” will qualify, as long as they are in accordance with the lease that was in place prior to Feb. 15th. Thus, deferred rent payments appear to be eligible for forgiveness as long as they were paid during the 8-weeks. Again, the SBA does not mention a limit on the maximum number of rent payments.
- Retirement plan effect? It appears Corporations will be able to receive forgiveness for all retirement plan payments paid during the 8-weeks. Meaning, it appears both matching contributions as well as profit sharing or defined benefit plan contributions are eligible. That being said, the SBA does not comment on whether these payments made can cover 2019’s contribution or all of 2020’s, should you have the cash to make the larger payment.
- Pay period doesn’t need to be weekly: for loan forgiveness, you will be allowed to choose an “alternate pay period.”
- You do not need to change your pay period to a weekly one.
- “Alternate Covered Pay Period” will begin with the first date of payroll after receiving the PPP loan and ends 56 days later.
- Planning tip: if you choose the Alternate Period, you may want to plan on adding one extra payroll before the end of the 56 days so you can request loan forgiveness for the final days of incurred payroll expenses.
- Other highlights: while we will be sharing all of the details with our clients over the coming days, the SBA has not fixed a few important aspects of the legislation with this application. For instance, health insurance and retirement benefits remain unforgivable for Sole Proprietors and Partnerships and we have been expecting this oversight to be fixed. And, there is no mention of paying family members so, absent any guidance, that appears to be allowed. Finally, many details are missing as to the maximums allowed for expenses that were paid during the 8-weeks yet not incurred during the period.
- Application due date: the application is to be submitted 60 days after the end of the 8-week period. The document walks you through the Full Time Equivalent(FTE) employee calculation as well as qualifying for a portion of the forgiveness, if you have not rehired 75% of your team (with some exceptions) or haven’t spent the 75% of the money on payroll.
As more guidelines become available, we will keep you informed. Below is a link to the PPP Loan Forgiveness Application.