SBA Issues PPP Loan Forgiveness Application

The SBA has issued the application form that borrowers are required to submit when seeking PPP Loan forgiveness. It is important to note that borrowers may not file the loan forgiveness application until at least 56 days after receipt of the date of their loan disbursement. This gives borrowers some time to consider any adjustments they may need to make based on the instructions currently provided within the application form. Some of the key issues addressed are summarized below.

Eight Week Covered Period

The SBA has provided some flexibility on when the eight week period for determining eligible payroll costs begins. Borrowers can select from one of two start dates:

    • The date on which the PPP loan is dispersed to the borrower (“Covered Period”), or
    • The first day of the next pay period following the PPP loan disbursement (“Alternative Payroll Covered Period”)

When Payroll Costs are “Incurred” and “Paid” 

The SBA has clarified that payroll costs are deemed to be “incurred” on the date an employee’s pay is earned and “paid” on the date a paycheck is distributed or an ACH credit transaction is originated. Payroll costs incurred but not paid during the last payroll of the eight week Covered Period or Alternative Payroll Covered Period, are eligible for forgiveness if paid on or before the next regular payroll date.

FTE Calculation

It was expected that the SBA would adopt the Affordable Care Act’s definition of “full-time” employee (one that works more than an average of 30 hours a week). However, in the loan forgiveness application the SBA clarifies that a full-time employee is considered to be one who works on average 40 or more hours per week. Thus, the average FTE employee headcount is to be calculated using one of the two following methods:

    • For each employee, the borrower is required to divide the average number of hours paid per week by 40, and round the total to the nearest tenth (the maximum for each employee is capped at 1.0); or
    • Borrowers can elect a simplified method of 1.0 for employees who work 40 hours or more per week and 0.5 for employees working less than 40 hours

FTE Reduction Exceptions

Due to generous federal unemployment benefits some workers are electing not to return to their jobs. To assist borrowers in this position the SBA provided the following FTE reduction exceptions: 

    • Any positions for which the borrower made a good-faith, written offer to rehire an employee during the Covered Period or the Alternative Payroll Covered Period which was rejected by the employee; and
    • Any employees who during the Covered Period or the Alternative Payroll Covered Period (a) were fired for cause, (b) voluntarily resigned, or (c) voluntarily requested and received a reduction of their hours

A borrower can only include these FTEs if the position was not filled by a new employee. Also, 75% of the loan must still be allocated to payroll costs in order for the loan to be full forgiven.

Note: The SBA has stated that additional guidance will be forthcoming, so the details concerning potential loan forgiveness may change. We will do our best to keep you up to date.

Borrowers that have not already done so can download a copy of the application form and instructions at:–paycheck-protection-program-loan-forgiveness-application.