The Small Business Administration has unveiled the Paycheck Protection Program Loan Forgiveness Application.
The application offers the first set of significant guidance regarding loan forgiveness under the program including expected documentation, changes to certain definitions, and processes for numerous calculations involved in the determination. Access to such information allows for a tremendous opportunity for proper planning to maximize loan forgiveness and should be done as early in the process as possible. Even if such planning has been done, plans should be reviewed and revised based on the new application.
The application defines forgivable payroll as payroll either paid during the Covered Period or incurred during the Covered Period if paid in the next pay cycle. The Covered Period is the eight weeks (56 days) from the date of the PPP Loan Disbursement Date. Additionally, the SBA is allowing borrowers with a bi-weekly (or more frequent payroll) an Alternative Payroll Covered Period which would last eight weeks from the first payroll following the PPP Loan Disbursement Date for ease of administration.
By allowing borrowers to recognize paid or incurred payroll, the SBA is assisting businesses to avoid losing precious forgivable expenses that would result only as a function of the timing of payroll. Additionally, the election of an Alternative Payroll Covered Period should ease the burden of producing and calculating partial payroll reports for certain companies. Both of these guidelines can be powerful planning tools if implemented properly.
Reduction Based on Reduction in Number of Employees
One area of significant concern for most borrowers has been the definition of a Full Time Equivalent (FTE) for the calculation to determine the reduction of the forgivable amount based on a reduction of the number of employees. The application provides a clear definition of 40 hours as a FTE. Additionally, a simplified method is now allowable that assigns one (1) FTE for employees working 40 hours per week or more or 0.5 FTE for employees working less than 40 hours per week.
Though the clarity makes planning and budgeting more functional, the calculation still appears fairly cumbersome. Use of the simplified method may assist borrowers administratively but may pose a significant pitfall for those currently operating at reduced hours. Planning around this calculation remains critical to avoid significant reductions in forgivable amounts.
Now that information is available concerning the process and guidance governing loan forgiveness, all borrowers should begin discussing and reviewing their plans for their respective loans immediately to look for any glaring issues in obtaining loan forgiveness.
For more information or for assistance in calculating your PPP loan forgiveness, reach out to our PPP team leader Keith Naccari.