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You Received your PPP Loan How do you Apply for Payment Forgiveness? SBA Releases Forgiveness Application - COVID-19 Legislation

May 2020


The Small Business Administration recently released an application for businesses that received Paycheck Protection Program (“PPP”) loans to apply for forgiveness.  PPP loans may be forgiven in an amount equal to the sum of eligible payroll costs and mortgage interest, rent and utility costs incurred, and paid, during the 8-week period following receipt of the funds.  The application provides some clarifications regarding forgiveness and provides an alternate calculation period for payroll costs for borrowers that have a bi-weekly, or more frequent, payroll schedule. A link to the Forgiveness Application is found below. When completed the Application must be submitted to your lender.

Alternate Payroll Calculation Period

Normally, the 8-week forgiveness period begins the day a business receives its PPP loan.  The forgiveness application provides that a business that has a bi-weekly, or more frequent, payroll schedule can begin their 8-week forgiveness period on the day of the first pay period after receiving the loan proceeds. This is referred to as the “Alternative Payroll Covered Period.”  For example, if a business received its PPP loan funds on April 20, 2020, and the first day of its first pay period following its PPP loan disbursement is April 26, 2020, the first day of the Alternative Payroll Covered Period is April 26, 2020, and the last day of the Alternative Payroll Covered Period is June 20, 2020.

Forgiveness Amount

The text of the CARES Act states that only the principal of a PPP loan is eligible for forgiveness, while the Interim Final Rule references both principal and interest as forgivable.  The loan application seems to indicate that the maximum amount of forgiveness is the total PPP loan amount, i.e., the PPP loan’s principal.  However, given the Interim Final Rule’s language regarding forgiveness of both principal and interest, this may be a drafting omission in the application and may change with future guidance or revisions to the forgiveness application.

Costs Paid and Incurred

The PPP provides that the amount of forgiveness is based on eligible payroll and non-payroll costs paid, and incurred, during the 8-week period after a business receives its loan.  The forgiveness application clarifies that costs paid and costs incurred during the 8-week period are eligible for forgiveness.

In addition to eligible non-payroll[1] costs paid during the 8-week period after a business receives its loan, eligible non-payroll costs incurred during the 8-week period after a business receives its loan, and paid on, or before, the next regular billing date are also eligible for forgiveness.

In addition to eligible payroll costs paid during the 8-week period after a business receives its loan, eligible payroll costs incurred, but not paid, during the business’s last pay period of the 8-week period after a business receives its loan, or the Alternative Payroll Covered Period, are eligible for forgiveness if paid on, or before, the next regular payroll date.

Full-Time Equivalent Employee Reductions

The maximum forgivable amount is reduced in proportion to any reduction in the average number of full-time equivalent employees compared to one of two periods during the prior year, or the first two months of this year. 

The application clarifies certain exemptions for reductions.  The following categories of employees will not count against a business when considering reductions in the average number of full-time equivalent employees:

  • Any positions for which the business made a good-faith, written offer to rehire an employee during the 8-week period after a business receives its loan, or the Alternative Payroll Covered Period which was rejected by the employee; and
  • Any employees who, during the 8-week period after a business receives its loan, 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.

Calculation of Full-Time Equivalent Employees

The forgiveness application also provides the method for calculating full-time equivalent employees.  A business can calculate its number of full-time equivalent employees in two ways:

  • For each employee, 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
  • A simplified method that assigns a 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work fewer hours

The full application can be found here.

If you have any questions related to this legislation, please contact your attorney at Pedersen & Houpt or the attorneys below and we will answer your questions and walk you through the program.

Larry Byrne  
Attorney at Law
161 North Clark Street, Suite 2700
Chicago, Illinois 60601
312-261-2155
lbyrne@pedersenhoupt.com

Eric J. Kordish
Attorney at Law
161 North Clark Street, Suite 2700
Chicago, Illinois 60601
312-261-2249
ekordish@pedersenhoupt.com

Matthew J. Schmidt
Attorney at Law
161 North Clark Street, Suite 2700
Chicago, Illinois 60601
312-261-2281
mschmidt@pedersenhoupt.com

David A. Martin
Attorney at Law
161 North Clark Street, Suite 2700
Chicago, Illinois 60601
312-261-2286
dmartin@pedersenhoupt.com

[1] Eligible non-payroll costs include:

(a) covered mortgage obligations: payments of interest (not including any prepayment or payment of principal) on any business mortgage obligation on real or personal property incurred before February 15, 2020;

(b) covered rent obligations: business rent or lease payments pursuant to lease agreements for real or personal property in force before February 15, 2020; and

(c) covered utility payments: business payments for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020.