Late on Friday, May 15, 2020, the SBA released its application for borrowers for PPP Loan forgiveness. While the SBA is expected to continue to release additional guidance on the forgiveness requirements, it is important that you start to review the forgiveness application. We would like to call your attention to critical concepts that will need to be addressed prior to the expiration of the 8-week period following the disbursement of your loan to ensure maximum forgiveness:
- If the number of full-time equivalent employees (FTEs) is lower than the number of FTEs you had during the first quarter of 2020, your loan forgiveness will be subject to additional reduction, unless you qualify for the safe harbor;
- If your employees received a reduction in salary or average hourly wages, your loan forgiveness may be subject to further reduction;
- At least 75% of the loan proceeds will need to be used on payroll and payroll-related costs, or forgiveness will be limited based on the portion used for payroll;
- The SBA has provided a safe harbor if you rehire employees by June 30th, which may delay the timing of your forgiveness application;
- In order to maximize your forgiveness, you will need to understand a number of new terms and calculations in this application, including “Alternative Covered Period”, a “Chosen Reference Period”, full-time equivalency calculations including a “FTE Reduction Quotient”, salary or hourly wage reduction calculations, incurred vs. paid expenses, and “amounts paid to owners”;
- The documentation that you will need to assembled and the calculations required to complete the forgiveness application appear to be lengthy, and in some cases complex, so we urge you to review the application thoroughly now, and seek additional advice and guidance, as needed, around completing your application; and
- The application process for sole-proprietors, independent contractors, partnerships, and LLC’s that are taxed as sole proprietors or partnerships may have different steps and requirements, depending on whether or not they have employees.
We strongly recommend that you read the entire application and instructions as soon as possible. For businesses with employees, begin by estimating your FTE and average salary or hourly wage calculations based on the Schedule A Worksheet for your Covered Period and again for your Chosen Reference Period. This will identify if you would be subject to either the FTE Reduction or the Salary/Hourly Wage Reduction and need to be working toward one of the safe harbors. Once the worksheet is complete (and for businesses without employees), fill out the Schedule A. Finally, complete the Application based on your current anticipated expenses. This will give you a way to understand the impacts of these calculations on your forgiveness. With proper planning now, you may be able to increase your forgiveness amount.
For your benefit, we have provided you with additional resources for your reference:
- American Institute of CPAs: PPP Loan Forgiveness Calculation Steps
- Stinson: PPP Loan Forgiveness Application Insights
As we learn more, we will work to make all beneficial and educational information available to you. We recognize this is an abundance of information and can be overwhelming. We remain committed to assisting you.