SBA Releases PPP Loan Forgiveness Application and Instructions


Policymakers are preparing to make significant changes to the Small Business Administration’s Paycheck Protection Program (PPP) amid cooling demand for government-backed loans and criticism from business owners who say they can't tap the funds, the Wall Street Journal reported. 

The changes are likely to include giving businesses more flexibility to spend the money (i.e., relaxing the requirement that 75 percent of funds be required to be spent on employee salaries for the loans to be forgiven), and also extending the time to spend the loan money beyond two months. 

The steps being considered represent a shift in the program's focus from one that was primarily aimed at keeping employees on the payroll, to also helping to keep small businesses from failing. 

Approximately 37 percent of funds remain available.

The SBA on May 15 released the PPP's "Loan Forgiveness Application" with instructions. The SBA still intends to publish additional rules and guidance on the program's forgiveness provisions, but the release does include some noteworthy highlights and answers to some outstanding questions:

  • The guidance retains the "75 percent on payroll costs" requirements (i.e., caps nonpayroll costs at 25 percent of total forgiveness amount). This may be altered in upcoming guidance (it does not require an act of Congress to change this). 
  • Eligibility for loan forgiveness will be assessed based on the rules and guidance in place on the date of your forgiveness application. It is important therefore to stay on top of the rules of the road given the rolling guidance. Forthcoming rules are likely to be more lenient than rules in place today.
  • There is some flexibility in the eight-week (56-day) forgiveness "Covered Period" for payroll cost, full-time equivalent employee, and employee salary reduction determinations.  Specifically, borrowers with a biweekly (or more frequent) payroll schedule may elect to calculate forgivable payroll costs using the eight weeks beginning on the first day of the first pay period following the loan disbursement date.
  • There is a specific box on the application indicating that a borrower, together with its affiliates, received a loan with an original principal amount above $2 million (but clarifies that you do NOT include affiliates for purposes of this determination if you have an affiliation rule waiver under SBA rules or under the CARES Act (e.g., for restaurant franchises)). This is likely to flag loans that will receive additional scrutiny from SBA. 
  • Eligible Payroll Costs:
    • Eligible payroll costs must be incurred AND paid (paycheck distributed or ACH credit transaction originated) during the Payroll Period, except you may pay those incurred during the last pay period of the period on or before the next regular payroll date and still get forgiveness.
    • Include employer contributions to employee health insurance, including self-insured plans; exclude any pre-tax or after tax contributions by employees (same for retirement plans)
    • Include amounts paid by the borrower for state and local taxes on employee compensation (e.g., state unemployment insurance tax); exclude any taxes withheld from employee earnings
    • For amounts paid to owner-employees, self-employed individuals, or general partners = lower of $15,385 or “eight-week equivalent of their applicable compensation in 2019” (this appears to refer back to 8 weeks’ worth of 2019 net profit from Form 1040 Schedule C, but that is not spelled out clearly).
  • Total Amount Calculation: Your forgiveness amount will be the smallest of: 
    • Your original PPP loan amount (no reference to interest -- consistent with the CARES Act, which caps forgiveness at the principal amount);
    • Total forgivable expenses, minus straight dollar reduction for any 25%+ wage reduction penalties, times percentage of full-time equivalent employees during Covered/Alternative Period compared to pre-crisis look back period (maximum of 1); or
    • Total eligible payroll costs (reported on line 1 of the application) divided by 0.75.
  • Two permissible methods for calculating full-time equivalent employees: 
    • For each employee, average number of hours paid per week, divide by 40 (round to nearest tenth); maximum for each employee = 1; or
    • Simplified method: assign a "1" for any employee who works 40 hours or more per week and "0.5" for employees who work fewer than 40 hours.

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