SBA Releases Updated Guidance for Loan Forgiveness

The guidance is new, and we expect additional guidance, consistent with the regular updates that have been issued over the past few weeks. Nevertheless, this information is quite valuable since it directly answers some of the most common questions. Below are some highlights from the new guidance: 

• Gives borrowers an option to use an “Alternative Payroll Covered Period” that might align more closely with the regular payroll cycle. Specifically, a borrower may elect to calculate eligible payroll costs using the eight-week period that begins on the first day of their first pay period following their PPP disbursement date.

• Payroll costs incurred but not paid during the borrower’s last pay period of the Covered Period (or the Alternative Covered Period described above) are eligible for forgiveness if they are paid on or before the next regular payroll pay date.

• Defines Eligible Nonpayroll costs that are eligible for forgiveness, providing more specific information about those costs, which will fall into one of three categories: (1) Mortgage interest (does not include principal on any business mortgage obligation on real or personal property, (2) business rent or lease payment obligations pursuant to lease agreement for real or personal property in force before February 15, 2020, and (3) covered utility payments for a service for the distribution of electricity, gas, water, business transportation, telephone, or internet access, for which service began before February 15, 2020 (“business utility payments”) 

• Provides explicit guidance for the calculation of Average FTE, and allows exceptions for (a) making a good faith, written offer to rehire an employee during the covered period, (b) employees who were fired for cause or voluntarily resigned or requested and received a reduction in their hours during the Covered Period.

• Provides a Safe Harbor exemption (from loan forgiveness reduction) for employers who (a) had reduced FTE levels between February 15, 2020 and April 26, 2020, AND the employer (PPP borrower) then restored FTE levels before June 30, 2020 back to its February 15, 2020 level.

The clarifications summarized above are welcome because they provide answers to some common questions in several key areas.  

The newly released SBA application for forgiveness is a comprehensive 11-page document and it will be critical to ensure the document is carefully prepared. Equally important, will be the need to ensure that supporting documentation is on file for any information presented within the PPP application for loan forgiveness. Supporting invoices, evidence or payment such as check stubs, bank statements, agreements/contracts, and applicable payroll reports may need to be produced based on what each lender requires to be submitted. In all cases, we recommend paying close attention to what your lender requires and providing as complete a package as possible to minimize the likelihood of excessive questions and increase the chances of an expedited process and a maximum amount forgiven.