Paycheck Protection Program Loan Forgiveness
Credit: Donald J. Sauder, CPA | CVA
The newly arrived and polished SBA guidance for the forgiveness of the famous COVID-19 business relief PPP Loans (Payroll Protection Program) is now being made available. The SBA PPP recently released a loan forgiveness application that clarifies the terms and conditions of obtaining cancellation of the low-interest indebtedness from the SBA’s PPP Treasury loans.
The PPP loan forgiveness application is available on the SBA website. Titled the Paycheck Protection Program Loan Forgiveness Application the loan forgiveness application form is similar in features to the initial PPP loan application.
Four segments of expenses are eligible for PPP loan forgiveness. These include payroll expenses, business mortgage interest on debts incurred before February 15th, 2020; business rents and lease expenses on agreements before February 15th, 2020; and utility expenses paid during the Covered Period.
The covered period of the forgiveness is eight-weeks or 56 days, beginning on the date the PPP loan disbursements were received. For example, if the borrower received its PPP loan proceeds on Monday, April 20th, 2020, the first covered day is April 20th, and the last covered day is Sunday, June 14th. The Alternative Payroll Covered Period.
Payroll expenses per the SBA guidance permit forgiveness for a PPP borrower on qualifying payroll costs incurred during the Covered Period or Alternative Payroll Covered Period. Payroll expenses are considered incurred on the day the checks are distributed, or ACH debit is posted for the payroll expense.
The Alternative Payroll Covered Period permits payments for payroll on biweekly schedules to elect an eight-week period that begins on the first day of the first pay of the receipt of the PPP disbursement form the SBA. Payroll cannot exceed $15,350 per individual or an annualized salary of $100,000, or the eight-week compensation of 2019. The qualifying expense is the lower of the two costs.
Payroll expenses must be at least 75% of forgivable PPP amounts, and not merely the entirety of the PPP loan amount. Qualifying payroll costs include salaries, wages, tips, commissions, and paid-time-off [PTO.]
The applications require information on the number of Full-Time Equivalents (FTE) employees as of February 15th and June 30th. The SBA guidance provides exemptions for qualifying forgiveness reductions in FTE’s for purposes including but not limited to employees who refused good-faith written offers for rehiring, were fired for cause, voluntarily resigned, or voluntarily requested and received a reduction in hours.
Business interest payments on real or personal property and rent or lease payments on agreements signed and incurred before February 15th are qualifying expenses for PPP forgiveness.
PPP Loans to businesses of more than $2.0 million with require additional procedures for applicable forgiveness approval. It is advised that all PPP borrowers discuss and obtain appropriate professional counsel on the terms of PPP forgiveness application features.