COVID-19 UPDATE: SBA Release Paycheck Protection Program Loan Forgiveness ApplicationMay 19, 2020
SBA has released the long-awaited Paycheck Protection Program Loan Forgiveness Application (the “Application”). The Application, SBA Form 3508, has four parts: (1) the PPP Loan Forgiveness Calculation Form; (2) PPP Schedule A; (3) the PPP Schedule A Worksheet; and (4) PPP Borrower Demographic Information Form. Borrowers are required to submit items (1) and (2) to their lender. Item (3) is a worksheet that borrowers will use to fill out items (1) and (2), and item (4) is an optional piece that borrowers are not required to fill out or submit.
Here are some items of note in the Application and instructions:
Alternate Payroll Covered Period: SBA includes an option for employers to use a different 8-week covered period when calculating payroll costs that begins on the first day of the payroll period following loan disbursement. This option should make it easier for a borrower to calculate and provide documentation regarding payroll costs. Note, this only applies to businesses that use a bi-weekly or more frequent payroll schedule and only applies to payroll costs. The “normal” covered period would still apply to all other costs.
FTE Reductions under the “Headcount” Test: SBA provided much needed guidance on how forgiveness reductions will be applied based on the “headcount” test.
First, SBA clarified that for the PPP program, it will use the 40-hour workweek (rather than the 30-hour ACA workweek) to calculate Fulltime Employee Equivalent (FTE). SBA also included a simplified option for borrowers to use 1.0 FTE for all full-time employees and 0.5 FTE for any employee working less than full time.
Second, SBA also provided additional guidance on the June 30 re-hire deadline, which it describes as the FTE Safe Harbor. For this exception to apply, a borrower who reduced FTE between February 15, 2020, and April 26, 2020, can avoid any FTE penalty if that borrower brings its FTE back to the FTE levels that existed on February 15, 2020. SBA does not include any requirements that the borrower bring back the same employees that were laid off, requirements as to the length of time that the employee would remain on the payroll past June 30, or any other certifications at this time.
Third, SBA includes additional information about employees whose FTE would be excluded from the headcount test. A borrower would exclude FTE for employees in two categories:
(1) any positions for which the Borrower made a good-faith, written offer to rehire an employee during the Covered Period or the Alternative Payroll Covered Period which was rejected by the employee; and (2) any employees who during the Covered Period 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.
Documentation and Certifications: Last, the Application gives definitive guidance on what documentation borrowers will need to include and the certifications borrowers will need to make. All borrowers should familiarize themselves with those sections.
Overall, the application included some necessary guidance on the forgiveness of PPP loans. Questions remain, and SBA will continue to provide updates on this process.