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SBA Releases PPP Loan Forgiveness Application

May 18, 2020

“Part One” of the guidance we have been waiting for is finally here and hopefully “Part Two” will not be far behind! Late Friday, May 15, 2020, the Small Business Administration (“SBA”) released the much anticipated Paycheck Protection Program (“PPP”) Loan Forgiveness Application along with detailed instructions.

The form and instructions attempt to guide borrowers on how to apply for forgiveness of their PPP loans. The SBA stated that it will issue regulations and further guidance to assist borrowers as they complete their applications, and to provide lenders with guidance on their responsibilities. Timing of this is unknown, but this is critical information and is “Part Two” of much needed guidance for small business owners with PPP loans.

Highlights of the forgiveness application include:

  • Payroll Cycle – Flexibility to allow borrowers to use their regular payroll cycle instead of the defined 8-week Covered Period (i.e., from date of funding).
  • Paid and Incurred – The application clarifies that costs incurred OR payments made may qualify for forgiveness.
  • $100K Annual Limit on Compensation – While $20,833 was the amount used for employees earning $100K or more for the loan application, only $15,385 will be allowed for the forgiveness process (8/52 of $100K).
  • Owner Compensation – The application adds a new limitation specific to owners. An owner’s compensation includible in Payroll Costs is the lesser of $15,385 or the 8-week equivalent of their 2019 compensation.
  • Forgiveness Reduction Safe Harbors
    • Full-Time Equivalent (“FTE”) Reduction Safe Harbor – If the borrower reduced its employees between February 15, 2020 and April 26, 2020 AND restored its FTEs by June 30, 2020 to the same levels as February 15, 2020, the borrower will not be penalized for a reduction in FTEs.
    • Salary Reduction Safe Harbor – The same safe harbor applies to a reduction in salaries. If the salaries are restored by June 30, 2020 to the same levels as February 15, 2020, then the safe harbor would be met.
  • FTE Calculation – Borrowers can use a simplified calculation to determine their FTEs – count employees who work 40+ hours/wk as 1 FTE and count employees who work less than 40 hours as .5 FTE. Note, owners are not included as FTEs.
  • FTE Reduction Exceptions – FTEs are not reduced if the borrower can show that:
    • The borrower made a good-faith and written offer to rehire an employee and it was rejected by the employee; or
    • The employee was fired for cause, voluntarily resigned, or requested a reduction in hours.
  • 75% Threshold – The application clarifies that payroll costs should comprise at least 75% of the forgiveness amount and not 75% of the PPP loan.

This information from the SBA provided much needed guidance, and helped to answer some of the questions on the PPP loan forgiveness process. However, more is still needed and we are anxiously awaiting “Part Two” to get a more comprehensive understanding of the forgiveness process and criteria.

We will continue providing updates as relevant information becomes available. If you have questions about how to navigate the PPP Forgiveness Application process, or how other CARES Act incentives may apply to your business, please reach out to your Beaird Harris advisor. You can stay up to date on PPP guidance and tax issues relating to the coronavirus at our COVID-19 Resource Center.


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