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PPP Loan Forgiveness Application now available

The SBA has released their initial application and instructions to apply for forgiveness for the PPP loan.  Many of our clients have participated in this program.  There has been a lot of rumor and speculation about how the forgiveness process will work.  As formal guidance starts to come out, we want to make sure our clients have the best information possible.  The covered period is a short window, and it’s important that funds are spent appropriately to qualify for forgiveness.    However, please keep in mind that without forgiveness, this still represents a very low (1%) interest rate loan.  It doesn’t make sense to force expenses for forgiveness if it will harm the cash flow of your business long term.  

With that in mind, here are some key points from the new guidance:

  • Payroll costs- The guidance allows a borrower to deduct costs “paid” or “incurred” during the 8-week covered period.   This appears to allow flexibility with the timing of use of funds.  In addition, payroll costs incurred but not paid during the 8-week period can still be included if they are paid by the next regular pay date. 
  • Alternative payroll period- If you are on a biweekly or weekly payroll schedule, you can elect to use an 8-week period starting with the first day of their first pay period following disbursement of PPP funds.  This will make accounting easier for some businesses. Note- you still must use the 8-week period starting with the disbursement date for all non-payroll related costs. 
  • Owner’s compensation- Owner pay eligible for forgiveness is limited to the lesser of $15,385 or the 8-week equivalent of their 2019 compensation.  
  • Limitations- The amount qualifying for forgiveness can be limited if there was a reduction in the average number of full time equivalent (FTE) employees.  The instructions include detailed guidance for calculating the number of FTEs during the period.  There are safe harbors to cover employees fired for cause, voluntarily resigned, or that voluntarily requested a reduction of hours.  There is also no penalty when an employer can show a good faith written effort to rehire an employee who rejects the offer. 
    • FTE Reduction Safe Harbor- Employers are not penalized for a reduction in staffing if the following conditions are met- (1) The borrower reduced its FTE levels after February 15, 2020 and ending April 26, 2020, and (2) the borrower, by no later than June 30, 2020, restored its FTE employee level that existed during the pay period that includes February 15, 2020. 

While these are just a few of the highlights, it’s helpful to have some concrete guidance as to what information will be necessary to calculate and document expenses for forgiveness.   The application and instructions can be found here. 

As always, if you have questions about how these instructions apply to your specific situation, please do not hesitate to ask.    

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