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G r e g G o r o s p e

G r e g . G o r o s p e @ i c e m i l l e r . c o m

PPP Loan Forgiveness

J o s h C h r i s t i e

J o s h u a . C h r i s t i e @ i c e m i l l e r . c o m

R e v i e w o f t h e S B A’ s L o a n

F o r g i v e n e s s A p p l i c a t i o n &

A s s o c i a t e d B e s t P r a c t i c e s

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• On May 15, 2020, the SBA and Department of Treasury

released the PPP loan forgiveness application and

associated instructions.

• The application provides more guidance on several key

issues regarding forgiveness.

Forgiveness Application Released

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• Loan Amount: Lesser of $10M or 2.5 months of Payroll Costs

• Forgiveness: Up to 100% of principal

• Deferral: Interest & principal payments - 6 months

• Term: 2 years

• Interest Rate: 1%

• Risk: No collateral or personal guarantees required

Paycheck Protection Program (PPP): Overview

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Documentation Requirements • PPP Loan Calculation Form

• PPP Schedule A

• Payroll – Documentation verifying eligible cash

& non-cash benefits from the covered period,

including:

• Bank statements or third-party payroll

reports

• Tax forms for period overlapping with the

covered period

• Payment receipts, cancelled checks, or

account statements documenting the

amount of any employer contributions to

employee health insurance and retirement

plans

• FTE – Documentation showing:

• Average number of FTE on payroll per month

from 2/15/2019 and 6/30/2019

• Average number of FTE on payroll per month

from 1/1/2020 and 2/29/2020

• See pg. 10 of application for seasonal

employees

• Non-payroll

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• Covered Period 8 weeks (56 days) from the date your loan is received (regardless of what time of day you receive the loan)

• Alternative Covered Period For payroll purposes only, the 8-week (56-day) period beginning on the first day of borrower’s first payroll period after the date borrower received PPP loan funds (if borrower’s payroll is bi-weekly or more frequent)

• Also applies to FTE comparison and compensation reduction calculations for purposes of determining any reductions in forgiveness based on those tests

• Examples:

• Borrower receives PPP loan proceeds Tuesday, 4/14/2020; next payroll period begins on Monday, 4/20/2020

Covered Period

• Covered Period:

• First day of Covered Period: 4/14/2020

• Last day of Covered Period: 6/8/2020

• Alternative Covered Period (payroll only):

• First day of Alternative Covered Period: 4/20/2020

• Last day of Alternative Covered Period: 6/14/2020

• SBA Clarification: Costs eligible for forgiveness include costs paid or incurred during borrower’s

covered period, whether or not actually paid during the covered period.

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• Include costs paid or costs incurred?

• Why choose the Alternative Covered Period?

• Payroll paid on first day of Covered Period

• Payroll incurred but not paid before end of Covered Period

• What about the “other” Covered Period (2/15/2020 – 6/30/2020)?

• What happens to loan proceeds not used during the Covered Period?

• Any word on Congress’s plans to modify the Covered Period?

Covered Period – Open Issues

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• Payroll

• Wages, salaries, commissions, tips or similar compensation

• Employer payments for: leave; severance; group health benefits; retirement benefits; state & local payroll taxes

• For self-employed: 8/52 of annual net income

• Payments of interest on any mortgage obligation

• Rent

• Utilities

• Interest on other debt obligations incurred before 2/15/20

Use of Loan Proceeds

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• What about bonuses? Hazard pay? Are there limits?

• Self-insured group health

• Timing of employer retirement contribution

• Rent for real estate vs personal property

• Utilities: transportation? Trash? Gasoline? Helium?

• Is all interest on debt forgivable?

• How do the self-employed fill out the form?

Use of Proceeds – Open Issues

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• A borrower’s forgiveness amount is the least of:

• (1) Eligible costs reduced by the CARES Act’s FTE and

compensation reduction tests,

• (2) Borrower’s full PPP loan amount, or

• (3) Amount equal to eligible payroll costs incurred or paid by

borrower during the covered period divided by 0.75.

Calculating Forgiveness Amount

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• A borrower’s forgiveness amount is the lesser of:

• (1) Eligible costs reduced by the CARES Act’s FTE and

compensation reduction tests,

• (2) Borrower’s full PPP loan amount, or

• (3) Amount equal to eligible payroll costs incurred or paid by

borrower during the covered period divided by 0.75.

Calculating Forgiveness Amount

Full-Time Employee (FTE) Test: • 1.0 FTE is an employee working an

average 40+ hours/week. Employees working less than 40 hours/week will be considered less than 1.0 FTE (rounded to nearest 10th).

• The application permits borrowers to simplify this calculation by providing that employees working 40+ hours/week are considered 1.0 FTE, and those under 40 hours/week are considered 0.5 FTE.

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• A borrower’s forgiveness amount is the lesser of:

• (1) Eligible costs reduced by the CARES Act’s FTE and

compensation reduction tests,

• (2) Borrower’s full PPP loan amount, or

• (3) Amount equal to eligible payroll costs incurred or paid by

borrower during the covered period divided by 0.75.

Calculating Forgiveness Amount

Employee exclusions that DO NOT impact forgiveness : 1) Positions for which the borrower made a

written good faith offer to rehire an employee during the covered period in which the employee does not accept,

2) Employees fired for cause during the covered period,

3) Employees who voluntarily resign during the covered period, and

4) Employees who voluntarily request and receive a reduction in hours during the covered period (and the position was not filled during the covered period)

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• A borrower’s forgiveness amount is the lesser of:

• (1) Eligible costs reduced by the CARES Act’s FTE and

compensation reduction tests,

• (2) Borrower’s full PPP loan amount, or

• (3) Amount equal to eligible payroll costs incurred or paid by

borrower during the covered period divided by 0.75.

Calculating Forgiveness Amount

For employees making less than $100,000 during 2019, borrower must compare each such employee’s average annual salary or hourly wage, as applicable, between January 1, 2020 and March 31, 2020 to the employee’s average annual salary during the covered period. If the latter is not at least 75% of the former, then there will be a reduction in forgiveness. The reduction amount is the difference between the actual compensation an employee received during the covered period and the compensation the employee would have received during the covered period if the employee’s average annual salary or hourly wage, as applicable, were 75% of what it was during the first quarter of 2020.

• CARES Act Safe Harbor: If an employee’s average annual salary or hourly wage as of June 30, 2020 is equal to or greater than that employee’s average annual salary or hourly wage as of February 15, 2020, then this test will not result in a reduction of forgiveness.

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• The 75% payroll costs test is not a total bar to forgiveness (but may still impact the total forgivable amount).

• Eligible costs include costs paid or incurred during the covered period.

• Certain borrowers can use actual payroll periods for determining eligible payroll costs (“Alternative Covered Period”).

• An FTE is an employee working on average 40+ hours/week.

• Certain employees are excluded from the FTE reduction calculation.

• Compensation reductions are based on compensation rate.

• Real and personal property leases are included in covered rent expenses for PPP loans.

Key Takeaways