May 18, 2020
On May 15, 2020, the U.S. Small Business Administration (“SBA”) released the much anticipated loan forgiveness application (“Application”) for loans issued under the Paycheck Protection Program (the “Program” or “PPP”), available here.[i] The Application and related instructions provide additional guidance regarding the amount of a PPP loan that may be forgiven and the amount such forgiveness may be reduced. The SBA has said it will soon issue regulations and guidance to further assist borrowers with the Application and provide lenders with direction on their duties. Below is a summary of the SBA Application and its instructions.
The Application provides borrowers with two paths to ascertain payroll costs eligible for forgiveness.
The Application confirms, consistent with the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) requirement, that only certain expenses paid or incurred during the 8-week period beginning on the date of the origination of a PPP loan may be forgiven. The Application provides that the first day of this 56-day “Covered Period” must be the same as the “PPP Loan Disbursement Date,” which is defined as the date that the borrower received the PPP loan proceeds from the lender or, if PPP loan proceeds were received on more than one date, the first date on which the borrower received PPP loan proceeds.
The Application also allows borrowers flexibility to choose an 8-week period specific to their own payroll schedule. If a borrower has a biweekly (or more frequent) payroll schedule, then the Application provides that the borrower may use an alternative 56-day period to calculate the amount of payroll costs paid or incurred that may be forgiven. This 56-day period, known as the “Alternative Payroll Covered Period,” begins on the first day of the borrower’s first pay period following the PPP Loan Disbursement Date. The Alternative Payroll Covered Period may only be used in lieu of the Covered Period to determine the amount of payroll costs eligible for forgiveness, and may not be used to determine the amount of nonpayroll costs eligible for forgiveness.
Costs Eligible for Forgiveness
The Application provides some detail on the amount eligible for forgiveness:
The categories of nonpayroll costs eligible for forgiveness are:
Reduction of Loan Forgiveness Amount
The forgiveness application includes “PPP Schedule A,” “PPP Schedule A Worksheet” and related instructions. These materials are used to determine whether and to what extent the loan forgiveness amount will be reduced. The Worksheet requires the borrower to list every employee employed during the Covered Period and, for each employee: his or her compensation, the average full-time equivalency of hours paid per week, and―if applicable―the amount of any salary or hourly wage reduction that exceeds 25%.
As required by the CARES Act, the amount of loan forgiveness may be reduced if there are reductions in the number of the borrower’s full-time equivalent employees (“FTEs”) per month during the covered period and/or the total salary or wages of any employee during the covered period, in each case, as compared to a prior period. For purposes of these determinations, borrowers must only include employees who did not receive, during any single pay period during 2019, wages or salary at an annualized rate of pay in an amount over $100,000.
However, the loan forgiveness amount will not be reduced if, during the period beginning on February 15, 2020, and ending on April 26, 2020, there is a reduction in the number of FTEs or total salary or wages, and the reduction is eliminated no later than June 30, 2020. In addition, the loan forgiveness amount will not be reduced because of a reduction in the number of FTEs due to (1) any positions for which the borrower made a good-faith, written offer to rehire an employee during the Covered Period or the Alternative Payroll Covered Period which was rejected by the employee; and (2) any employees who during the Covered Period or the Alternative Payroll Covered Period (a) were fired for cause, (b) voluntarily resigned or (c) voluntarily requested and received a reduction of their hours.
The Application provides two alternative methods for calculating a borrower’s number of FTEs:
The person signing the loan forgiveness application is required to make various certifications, including, among others, that:
The Application lists documents to be submitted with the Application, including:
The Application also lists documents that borrowers must retain but are not required to be submitted with the Application. This includes the PPP Schedule A Worksheet and supporting documentation, and documentation regarding employee job offers and refusals, firings for cause, voluntary resignations, and written requests by any employee for reductions in work schedule.
The Application provides that borrowers must retain certain information in their files for six years after the date the PPP loan is forgiven or repaid in full, and permit authorized SBA representatives, including representatives of SBA’s Office of Inspector General, to access such files upon request. This information includes all records relating to the PPP loan, including documentation submitted with the PPP loan application, documentation supporting the certifications as to the necessity of the PPP loan request and eligibility for a PPP loan, documentation necessary to support the loan forgiveness application, and documentation demonstrating material compliance with PPP requirements.
[i] For additional details about the PPP please refer to Gibson Dunn’s Frequently Asked Questions to Assist Small Businesses and Nonprofits in Navigating the COVID-19 Pandemic and prior Client Alerts about the Program: SBA “Paycheck Protection” Loan Program Under the CARES Act; Small Business Administration and Department of Treasury Publish Paycheck Protection Program Loan Application Form and Instructions to Help Businesses Keep Workforce Employed; Small Business Administration Issues Interim Final Rule and Final Application Form for Paycheck Protection Program; Small Business Administration Issues Interim Final Rule on Affiliation, Summary of Affiliation Tests, Lender Application Form and Agreement, and FAQs for Paycheck Protection Program, Analysis of Small Business Administration Memorandum on Affiliation Rules and FAQs on Paycheck Protection Program and Small Business Administration Publishes Additional Interim Final Rules and New Guidance Related to PPP Loan Eligibility and Accessibility.
Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these developments. For further information, please contact the Gibson Dunn lawyer with whom you usually work, or the following authors:
Michael D. Bopp – Washington, D.C. (+1 202-955-8256, firstname.lastname@example.org)
Roscoe Jones, Jr.* – Washington, D.C. (+1 202-887-3530, email@example.com)
Alisa Babitz – Washington, D.C. (+1 202-887-3720, firstname.lastname@example.org)
Courtney M. Brown – Washington, D.C. (+1 202-955-8685, email@example.com)
Alexander Orr – Washington, D.C. (+1 202-887-3565, firstname.lastname@example.org)
William Lawrence – Washington, D.C. (+1 202-887-3654, email@example.com)
Samantha Ostrom – Washington, D.C. (+1 202-955-8249, firstname.lastname@example.org)
* Not admitted to practice in Washington, D.C.; currently practicing under the supervision of Gibson, Dunn & Crutcher LLP.
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