Paycheck Protection Program Loan Forgiveness Update
On May 15, 2020, the U.S. Small Business Administration (SBA) released the highly anticipated loan forgiveness application form and instructions (attached) for those receiving loans under the Paycheck Protection Program (PPP). This guidance was greatly needed and provides clarity to borrowers regarding certain calculations, as well as the forgiveness process in general. Some of the most common questions and answers surrounding forgiveness are as follows:
1. Is the 8-week covered period kept on a cash or accrual method? The application instructions indicate that it is both. In explaining the calculation of eligible payroll and non-payroll costs, the instructions indicate to include eligible costs “incurred or paid” during the covered period. This means that the cash basis can be used for the first payroll (which likely includes wages earned BEFORE the covered period started) and the accrual method for the last payroll; stating that “costs incurred but not paid during the Borrower’s last pay period of the Covered Period are eligible for forgiveness if paid on or before the next regular payroll date.”
For non-payroll, “cost must be paid during the Covered Period or incurred during the Covered Period and paid on or before the next regular billing date, even if the billing date is after the Covered Period.”
It is also worth noting that there is an “alternative covered period” option as it relates to payroll costs only – see definition and explanation on page 1 of the attached instruction form.
*Stay tuned on the item above. While beneficial to borrowers, it does not appear to be in line with the original intent of the PPP and is subject to clarification by the SBA.
2. What is included in rents? Page 2 of the instructions indicate that it is “business rent or lease payments pursuant to lease agreements for real or personal property in force before February 15, 2020”, indicating that you may include lease payments related to personal property such as vehicles, equipment, etc.
3. What is included in utilities? Page 2 states “business payments for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020. The “transportation” inclusion supports the 4/14/20 interim final ruling issued that listed gas for automobiles used in business.
4. How do I calculate a full-time equivalent? Previous PPP guidance was silent on this, and the CARES Act said to use the standard definition. As a result, there was much speculation that the threshold would be the 30 hours/week as defined by the Affordable Care Act. The PPP instructions now define for PPP purposes the borrower has to calculate for each employee the average number of hours paid per week during the referenced period and divide by 40. Any employee working 40 hours or more is assigned a 1.0 employee for this purpose. Page 7 of the attached instructions goes into more detail and provides a simplified calculation option.
5. How much will be my reduction in forgiveness due to decreases in pay and/or FTE’s? Schedule A and the related worksheet provide the calculation for pay reduction of more than 25% as well as the full-time equivalent reduction calculation. There are also various exceptions as well as a safe harbor that could allow the borrower to avoid forgiveness reduction in these areas and are described on page 8.
We will be consulting with our peer professionals regarding the PPP loan forgiveness application and instructions over the remainder of this week and will provide updated guidance as new developments arise. In the meantime, we have developed an Excel template included below to assist you with the forgiveness calculations. Please do not hesitate to contact your Faulk & Winkler representative with further questions (225-927-6811) as some tailoring will be required to fit your specific situation.
Application & Instruction Form
Sincerely,
Faulk & Winkler, LLC
Baton Rouge, Louisiana