Updated May 18, 2020

On Friday, May 15, the SBA issued the instructions and application for PPP forgiveness.  While additional questions and issues are likely to arise and require clarification as actual borrowers work through the process, the form itself is fairly straightforward.  We advise borrowers to become familiar with the requirements and begin necessary planning and preparations, as described below, to help facilitate the application process.  Download the application Here.

Here. Key takeaways:

  • While banks may choose to adapt or customize the SBA’s application form, the existence of this single, unified format should help standardize the process and eliminate some potential confusion

  • Perhaps the most confusing - but also potentially helpful - aspect of the application is the ability for borrowers to elect to use an Alternative Payroll Covered Period ("APCP").  This should make it the application easier by allowing borrowers to use normal pay period data

    • Technically, the "covered period" for PPP spending and forgiveness runs for eight weeks (56 days) from the date funds are received.  The APCP allows borrowers to instead choose to begin payroll calculations for eight weeks beginning with the first day of the next payroll period.  

    • For example, if PPP  proceeds are received on Monday, April 20, and the first day of its first pay period following its PPP loan disbursement is Sunday, April 26, the Alternative Payroll Covered Period is April 26 to June 20.

  • Borrowers are also allowed to include payroll and other eligible costs that are incurred but not yet paid during the covered period, as long as they are paid on or before the next regular pay date.  This allows for borrowers to include payroll, rent, mortgage or utilities that cover the eight week forgiveness period, but are actually paid soon thereafter

  • There is also an option to simplify the headcount (FTE) calculation.  Borrowers can calculate FTE on an hourly basis for all employees or elect to designate employees either full time (1.0 FTEs) or part-time (0.5).

  • The salary-reduction calculation used to reduce the forgivable amount is based on salary and hourly wages only.  It thus appears that total payroll spending that reflects additional vacation, benefits or other non-salary spending may be subject to additional reduction based on salary levels (if salaries or wages are reduced by 25% or more) 

Forgiveness Calculation:  In summary, a borrower is asked to provide:

  • Total payroll & related costs for the period, as well as eligible rent, mortgage payments 

    • There is no alternative period for non-payroll costs.  Rent, mortgage and utilities must be for the eight week period beginning on the date PPP funds are received (although these can include “incurred” amounts paid at the next billing date, as described above)

    • Borrowers don't have to include non-payroll costs for which they're not seeking forgiveness

  • Subtract the total amount of salary or wage reductions.  This is calculated on a separate schedule*

  • This is then multiplied by a "FTE reduction quotient" (also calculated separately) to calculate a "modified total potential forgiveness amount"*

  • Forgiveness is then calculated as the smallest of:

    • The modified potential forgiveness amount as described above

    • The total eligible payroll divided by 0.75 (to insure that 75% of forgiveness is spent on payroll)

    • The total PPP loan 

*There are "safe harbor" calculations to adjust back for headcount and salary levels restored by June 30, 2020

What should borrowers do now:

  • Calculate your "Covered Period", which begins the date PPP funds are received and ends 56 days later

  • Set your payroll period.   

    • Borrowers with a weekly or bi-weekly payroll may generally prefer to set an alternative payroll covered period beginning at the start of the first pay cycle following receipt of PPP funds

    • Borrowers with a calendar-based payroll (monthly, twice-monthly) will face some additional complexity.  Such borrowers should identify whether it makes sense to set an alternative pay period beginning on the first day of the next pay period, recognizing that they may need to prorate some part of the last pay cycle, or simply use the actual 8-week period following PPP receipt

  • Calculate FTEs: determine whether an hourly-based or simplified FTE calculation works for you

  • Track all salary and related payroll expenses during the covered period or APCP, including hourly data if using an FTE calculation

  • Calculate how much you can spend on expenses other than payroll.  At most, this will be 25% of the PPP total, less if you anticipate headcount or salary and wage reductions

  • Keep careful records on non-payroll spending.  Calculate rent, mortgage and utilities - including partial amounts paid later - for the 8-week period from the date PPP proceeds are received