After weeks of anticipation, the Paycheck Protection Program’s (PPP) Loan Forgiveness Application has been issued by the Small Business Association (SBA) and Treasury Department. Borrowers—and their accountants—will begin to work through the 11-page application and instructions to determine what proportion of their PPP loan will be converted to a tax-free grant. Unfortunately, similar to the initial confusion and frustration surrounding the roll-out and loan application process for the PPP in early April, the application for forgiveness is anything but simple.

While additional guidance and clarity may be needed in the coming weeks, the application does provide a number of important answers for PPP loan recipients. First and foremost, concerning payment of payroll expenses, the application provides an option to utilize an “alternative” eight-week Covered Period for borrowers with a biweekly (or more frequent) payroll schedule. Accordingly, while the CARES Act and subsequent regulations defined the Covered Period as the eight-week period immediately following the origination of the loan, this allowance for an “alternative” aligns the calculation with the normal operations of the business. Additionally, the forgiveness application further provides that borrowers will be able to include payroll expenses that are incurred but not yet paid during the Covered Period. Importantly, these steps alleviate concerns for business owners that the Covered Period may not properly encompass payroll cycles during the eight-week period.

The application also includes:

• Two methods—normal and simplified—for calculating full time equivalent (FTE) employees during the Covered Period. A business must know precisely the amount of FTEs both before the Covered Period and throughout to determine if any of its PPP loan amount eligible for forgiveness will be proportionately reduced as a result of a reduction in FTEs.
• Codification of the FTE Reduction Exceptions, previously mentioned in FAQs, which provides that a reduction in FTEs will be ignored if:
  • a borrower can demonstrate a good-faith, written offer to rehire an employee during the Covered Period which was rejected by the employee; and
  • any employees who, during the Covered Period, were: (a) fired for cause, (b) voluntarily resigned, or (c) voluntarily requested and received a reduction of their hours.

• More detail is provided on computing the salary/hourly wage reduction.
• A list of documentation that borrowers are required to submit or retain along with the Loan Forgiveness Application.

Finally, the application and instructions importantly include the $2 million safe harbor that was introduced by the FAQ issued on May 13, 2020. On page one of the application, borrowers are required to affirmatively check whether “Borrower (together with affiliates, if applicable) received PPP loans in excess of $2 million.”

For a general overview of the PPP program, click here.