PPP Loan Program Update: The New SBA Loan Waiver Application

On May 15, 2020, the SBA published its Paycheck Protection Program (PPP) Loan Forgiveness use and instructions for completion. This application must be completed and submitted to their lenders by the PPP borrowers after the eight week coverage period has expired in order to receive a waiver on their loans.

The loan waiver application and accompanying instructions contain several important changes and clarifications regarding enforceable PPP loan amounts:

  • Different payroll period. For ease of administration, PPP borrowers can calculate eligible labor costs for the eight week period from the first day of the first payment period following the loan disbursement date (instead of the eight week period beginning on the loan disbursement date) (an “alternative covered Period”). This is a welcome clarification, even if the treatment of expenses from borrowers with a covered term after 06/30/2020 (the legal end of the PPP) remains unclear.
  • Costs “paid or incurred”. The legal wording allowing forgiveness for “costs and payments incurred during the covered period” had created confusion about the costs paid or incurred immediately outside of the covered period. The Application Notes clarify that eligible labor costs paid or incurred during the Covered Period (or an alternative Covered Period) may be waived so that (a) wage costs incurred before the Loan Disbursement Date but during the Covered Period ( or alternatively) were paid for the Covered Period) and (b) incurred during the Covered Period (or the Alternative Covered Period) but were paid after the Covered Period (or the Alternative Covered Period). To this end, labor costs are paid on the day the employer / borrower issues paychecks or initiates an automatic clearing house (ACH) credit transaction and are incurred on the day the employee’s salary is drawn. Eligible Non-Paid Charges must be (a) paid during the Covered Period, or (b) incurred during the Covered Period and paid on or before the next regular Billing Date, even if the Billing Date is after the Covered Period.
  • Forgiveness calculations, penalties and reliefs. Loan Application Appendix A and its associated worksheets explain and provide arithmetic guidance regarding key metrics such as full-time equivalent (FTE) average employees, forgiveness penalties, penalty relief and safe havens for eliminating penalties for downsizing. For example, the loan waiver will not be reduced if the borrower (a) reduces their FTE staff between February 15, 2020 and April 26, 2020, and (b) then reduces their FTE staff by 30 in the pay period ending on 15 April 2020 February 2020 included. In addition, the calculation of the loan waiver reduction provides for exceptions for (a) situations where a borrower has made in good faith a written offer to reinstate an employee during the covered period that was declined by the employee and (b) situations where employees during the period covered (i) were dismissed for cause, (ii) voluntarily resigned, or (iii) voluntarily applied for and received a reduction in their working hours. Loan waiver penalties will be applied to workers whose average annual salary or wage in 2019 was less than $ 100,000 in salary or wage cuts. The reduction is required if the wage cut exceeds 25% of total wages during the eight week period or the employee’s wages between January 1 and March 31, 2020, unless the employee’s annualized average wage is reduced by June 30, 2020 restored.
  • Compensation caps. In accordance with previous SBA guidelines, the instructions provide that the compensation of any individual employee who earns more than $ 100,000 annually cannot exceed a pro-rated amount of $ 15,385 for the period covered.
  • Documentation. Appendix A of the Loan Application also lists the pay, full-time, and non-pay documents that must be submitted in support of the application. Required payroll documents include bank statements or reports from outside payroll service providers that document cash settlement payments, tax forms and receipts, canceled checks or bank statements that document any employee health insurance and retirement benefits. In order to support his FTE calculation, the borrower must, at his option, provide documents showing the average number of FTE employees per month who were employed from February 15 to 30 June 2019, the average number of FTE employees per month employed in January 1 – February 29, 2020 or, in the case of a seasonal employer, the average number of payroll FTE staff per month who worked for a seasonal employer during the applicable period covered. Non-payroll records required include (a) a copy of the lender’s amortization schedule for corporate mortgage interest payments and receipts or voided checks to verify eligible payments or lender bank statements to verify interest and creditable payments; (b) rental or lease payments for Corporations, a copy of the current rental agreement and receipts or canceled checks to confirm eligible payments, or lessor bank statements to confirm eligible payments, and (c) for utility utility payments, copies of invoices and receipts, canceled checks or bank statements to confirm eligible payments. With regard to the definition of “rent” for PPP purposes, we would like to point out that it remains unclear whether additional rental costs such as maintenance costs for common rooms, property taxes or late payment surcharges are solvent.

The SBA has indicated that additional guidelines will be issued to assist borrowers in completing their applications and lenders in fulfilling their obligations.

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