SBA Releases Paycheck Protection Program Loan Forgiveness Application
By: Kyle P. Graham
On Friday, May 15th, the Small Business Administration (SBA) released the Paycheck Protection Program (PPP) Loan Forgiveness Application together with detailed instructions that borrowers must use to calculate their loan forgiveness amount. The form and instructions inform borrowers how to apply for forgiveness of their PPP loans, consistent with the CARES Act. The SBA also announced that it will issue regulations and guidance to further assist borrowers as they complete their applications.
A PPP loan is forgivable to the extent that borrowers carefully follow certain requirements implemented by the SBA. In order for a loan to be completely forgiven, borrowers must use at least 75% of the loan proceeds on payroll costs during the eight-week period after receiving the loan, while the remainder can be used for certain specific nonpayroll costs: rent payments, utility expenses, and mortgage interest payments. The intention of the program is for small businesses to maintain employment and compensation levels during this period of economic uncertainty due to the coronavirus pandemic. The attorneys at McCarthy Lebit have written extensively about the PPP at https://www.mccarthylebit.com/blog/.
The PPP Loan Forgiveness Application and its instructions include measures to reduce compliance burdens and simplify the process for borrowers. Step-by-step instructions explain how to perform the forgiveness calculations required by the CARES Act and confirm eligibility for loan forgiveness. Notably, the 75% requirement is not an “all-or-nothing” requirement and a borrower who spends less than 75% on payroll costs is still eligible for forgiveness. The application makes clear that in such a scenario, “eligible nonpayroll costs cannot exceed 25% of the total forgiveness amount.”
The application also includes the option for borrowers to calculate payroll costs using an “alternative payroll covered period” which is an eight-week (56-day) period that begins on the first day of the borrower’s first pay period following the PPP loan disbursement date. Further, the application includes the addition of a new exemption from the loan forgiveness reduction for borrowers who have made a good-faith, written offer to rehire workers that was declined. A copy of the application and its instructions can be found at the SBA’s website at https://www.sba.gov/about-sba/sba-newsroom/press-releases-media-advisories/sba-and-treasury-release-paycheck-protection-program-loan-forgiveness-application. Borrowers also have the option to complete the application electronically through their lenders.
Additional guidance on the application is expected to be released soon. Given the potential complexity of the loan forgiveness calculations and the numerous requirements of the PPP, borrowers are advised to contact their professional advisors for help in completing the loan forgiveness application.
Kyle Graham is an attorney at the Cleveland, OH-based law firm McCarthy, Lebit, Crystal & Liffman.
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