SBA Issues New Long-Form PPP Forgiveness Application

The Paycheck Protection Program (PPP) was launched at the beginning of the COVID-19 pandemic. Implemented as a key part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, it was designed to provide low-cost loans to businesses impacted by the various stay at home, forced business closures, and other orders issued by state and local governments. As of June 12, 2020, more than 4 million loans have been issued across the U.S., including 136,879 loans to New Jersey businesses and 158,720 loans to businesses in Pennsylvania. Although these funds have helped companies stay in business, there has been significant confusion about loan forgiveness because of complex rules and regulations.

As many borrowers were approaching the end of their covered period, Congress passed the PPP Flexibility Act of 2020, which made several changes to the loan forgiveness process, including changes favorable for borrowers. Earlier this week, the SBA updated the long-form loan forgiveness application to align with the recently passed changes. Also, an EZ version of the application was created for self-employed and other qualifying borrowers. To help you understand these changes, Klatzkin has provided a summary of the highlights below.

Key Loan Forgiveness Application Changes

The recently issued PPP loan forgiveness application is noticeably shorter than its predecessor (reduced from 11 to 5 pages) and is accompanied by a new instructions supplement. The application also includes guidance on the new 24-week covered period, covered period elections, required expense minimums, FTE safe harbors, FTE reductions, and an overview of the necessary documentation.

• Covered Period Election – Borrowers that received a loan before June 5, 2020, can elect if they want to retain the original 8-week covered period or transition to the new 24-week covered period.
• Updated Required Expense Minimums – Many borrowers are likely familiar with the requirement that at least 75% of loan funds need to be allocated to payroll costs. Otherwise, a forgiveness reduction could occur. However, the instructions have been updated to reflect the new 60% minimum for payroll costs. This permits many to strike a better balance between payroll and other qualified expenses.
• FTE Reduction Exceptions – Many borrowers were concerned about how forgiveness would be impacted by those who did not accept rehire offers. The new application instructions outline several reduction exceptions to address this concern.
  • In situations where a good faith, written offer was made to rehire an employee and where the borrower was unable to hire similarly qualified employees for unfilled positions before December 31, 2020.
  • Any instances when the borrower made a good faith written offer to restore reduction in hours, at the same salary or wages and the employee rejected the offer.
  • Finally, in situations when an employee was fired for cause, voluntarily resigned, or requested a reduction in hours during the covered period.
• FTE Reduction Safe Harbors – Two safe harbors prevent certain borrowers from receiving a forgiveness reduction from FTE employee changes.
  • A borrower is exempt from a forgiveness reduction when documentation is provided, demonstrating the inability to operate at the same level of business activity because of federal, state, and local COVID-19 orders and guidelines.
  • A borrower is also exempt from a forgiveness reduction when both of the following conditions are met. First, they must have reduced FTE employee levels between February 15 and April 25. Second, they must have restored FTE employee levels no later than December 31, 2020, to FTE levels in the paid period that include February 15, 2020.
• Required Documentation – The instructions also provide specific information on what documentation should be submitted with the forgiveness application. This consists of the following information on payroll costs and nonpayroll costs.
• Payroll Documentation – Documentation provided should include that which verifies cash compensation and non-cash benefits paid during the covered period. Examples include bank statements, third party payroll reports, relevant tax forms such as IRS Form 941, state quarterly employee wage reporting, payment receipts, canceled checks, and account statements documenting relevant expenses.
• Nonpayroll Documentation – Documentation provided should include that which verifies the existence of obligations and services before February 15, 2020, and eligible payments made during the covered period. This applies to business mortgage interest, rent or lease, and business utility payments. Examples include copies of the lease, mortgage, and other service agreements along with proof of payment, such as canceled checks, account statements, or payment receipts.

Contact Us

The new application and instructions are designed to make the forgiveness process easier for borrowers. However, there are many sections requiring complex calculations and specific information, so it is important to work with a qualified advisor on the process. If you have questions about the information outlined above or need assistance with another PPP-related issue, Klatzkin can help. For additional information, click here to contact us. We look forward to speaking with you soon.

The above represents our best understanding and interpretation of the material covered as of the date of this post. Things are moving at a rapid pace, and as such, information is subject to change. This information is provided for informational purposes only and is not intended to be a substitute for obtaining accounting, tax, or financial advice from an accountant.