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SBA Releases PPP Loan Forgiveness Application and Instructions

May 26, 2020

May 26, 2020

The SBA recently released its loan forgiveness application for the Paycheck Protection Program (“PPP”) under the The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).  Along with the application, the SBA has included instructions that provide additional guidance and resolve several questions related to the calculation of forgiveness of PPP loans.  The application and instructions may be found HERE.

Discussed below are several of the most important points covered in this new guidance.

Maximizing Payroll Costs

The CARES Act provides that the starting point of the forgiveness calculation is the amount of the loan proceeds spent during the “Covered Period” which is defined as the eight-week period beginning with the date the PPP loan was disbursed.  Some loan recipients worried that using that required eight-week period might not capture all of payroll costs related to that period because payroll cycles may not match precisely.  The new guidance address this issue in two ways:

  • Employers with a biweekly or weekly payroll schedule may elect to use the “Alternate Payroll Covered Period.” This period is the eight-week period that begins on the first day of the first pay period after the loan disbursement date. 
  • Payroll costs include all such costs that are paid or incurred:
    • Payroll costs are considered paid on the date that paychecks are distributed or the employer initiates ACH transfers.
    • Payroll costs are considered incurred on the day that the employee’s pay is earned. Payroll costs incurred but not paid during the employer’s last pay period of the Covered Period (or Alternate Payroll Covered Period) are eligible for forgiveness if paid on or before the next regular payroll date.

Note, however, that borrowers must continue to calculate non-payroll costs in reference to the Covered Period.

Limits on Payroll Costs

The new guidance clarifies that the total amount of cash compensation eligible for forgiveness may not exceed an annual salary of $100,000 per employee (or $15,385 for the Covered Period or the Alternate Payroll Covered Period).  Other components of payroll costs are not subject to this dollar limitation – such additional categories of payroll costs include employer contributions for employee health insurance and retirement plans.  Also, it is not clear if these employer contributions are required to relate to the Covered Period – additional guidance may provide clarification.

Additional Non-Payroll Costs

In several ways, the new guidance clarifies, and in some ways expands, the categories on non-payroll cost that may be subject to forgiveness (although at present the rules require that such non-payroll costs cannot exceed 25% of the use of loan proceeds):

  • “Covered mortgage obligations” – the new guidance clarifies that this category includes payments of interest (but not payments or prepayments of principal) on any business debt secured by real or personal property incurred prior to February 15, 2020.
  • “Covered rent obligations” – the new guidance clarifies that this category includes payment of obligations on leases of real or personal property under leases effective prior to February 15, 2020. The description of “covered lease payment” does not include language specifically excluding prepayments, but without additional guidance it is not clear whether prepayments of lease obligations will be allowed.

Determination of FTE

The CARES Act requires borrowers to satisfy various tests related to number of employees and compensation levels.  An earlier Shulman Rogers Alert describing the general rules of forgiveness of PPP Loans can be found HERE.

The tests related to number of employees requires the borrower to compare the number of full-time equivalent (“FTE”) employees during the covered period to a period prior to disbursement of the PPP loan, but the CARES Act did not establish a method to calculate FTE.

Under the new guidance, borrowers are instructed, for each employee, to add up the number of hours paid per week and divide by 40 (rounded to the nearest tenth), with each employee capped at 1.0.  Borrowers have the option of using a simplified alternative method which assigns 1.0 for each employee that works at least 40 hours per week and 0.5 for each employee who works less than 40 hours per week.

The instructions require that the employer indicate the FTE of any employee that (i) rejected the employer’s written, good-faith offer to rehire, (ii) was fired for cause, (iii) voluntarily resigned, or (iv) voluntarily requested and received a reduction in hours.  In such cases, the related FTE’s are included only if the position was not filled by a new employee, and reduction of these FTEs will not reduce a borrower’s loan forgiveness.



The contents of this Alert are for informational purposes only and do not constitute legal advice.  If you have any questions about this Alert, please contact the Shulman Rogers attorney with whom you regularly work or feel free to contact a member of the Commercial Finance Practice Group.


Timothy Bryan


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