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SBA Issues Guidance on Applying for PPP Loan Forgiveness
By Frank S. Tomkins

October 20, 2020 - In March, Congress enacted the Paycheck Protection Program ("PPP") under Section 7(c) of the Small Business Act. Under the program, small businesses could apply for forgivable loans of up to $10 million per company to provide cash flow assistance to companies which maintained their payrolls during the COVID-19 emergency. The loans were to be completely forgivable, if the companies receiving the loans satisfied certain requirements.

The SBA has now issued guidelines for the filings that borrowing companies must follow in order to apply for forgiveness of their PPP loan. The application for forgiveness can be filed at any time prior to the maturity date of the PPP loan, although if the application is not filed within ten (10) months after the completion of the covered period (as defined below), the borrower must begin repaying the loan. The guidelines require the borrower to submit a PPP Loan Forgiveness Calculation Form, which must include the following:
  1. The total number of employees employed by the borrower at the time of the borrower's PPP loan application;
  2. The total number of employees employed by the borrower at the time of the borrower's application for loan forgiveness;
  3. The covered period of the PPP Loan. This period will be either the 24 week (168 day) period beginning on the date the borrower received the PPP loan proceeds or, if the borrower received the PPP loan prior to June 5, 2020, the borrower may elect to use an eight-week covered period, commencing on the date the borrower received the loan. In no event may the covered period extend beyond December 31, 2020;
  4. The total eligible payroll costs incurred during the covered period;
  5. The amount of business mortgage interest payments made during the covered period;
  6. The amount of business lease payments for real or personal property made during the covered period; and
  7. The amount of business utility payments made during the covered period.

The expenses listed in 5, 6 and 7 above cannot exceed 40% of the forgiveness amount, so at least 60% of the amount for which forgiveness is sought must be payroll costs.

The forgiveness application must include a certification from an authorized representative of the borrower that:
  1. The dollar amount for which forgiveness is requested was used to pay costs that are eligible for forgiveness;
  2. The dollar amount for which forgiveness is requested does not include non-payroll in excess of 40% of the forgiveness amount requested;
  3. The dollar amount does not exceed eight weeks' worth of compensation for any owner-employee or self-employed individual, capped at $15,385 per individual if the covered period is eight weeks or $20,833 if the covered period is 24 weeks;
  4. The borrower has accurately verified the payments for the eligible payroll and non-payroll costs for which the borrower is requesting forgiveness; and
  5. The borrower has submitted to the lender the required documentation verifying the costs for which forgiveness is sought.

The forgiveness amount may be reduced if the borrower has fewer full time employees during the covered period than the borrower had during the period from either February 15, 2019 through June 30, 2019 or January 1, 2020 through February 29, 2020, at the borrower's election.
Finally, the borrower must include the following supporting documentation with its forgiveness application:
  1. Reports documenting the amount of cash compensation paid to employees;
  2. Payroll tax filings reported to the IRS;
  3. Wage reporting and unemployment insurance tax filings reported to the applicable state;
  4. Statements documenting the amount of any employer contributions to employee health insurance and retirement plans included in the forgiveness amount;
  5. Documentation showing the average number of full time employees during the period chosen by the borrower;
  6. Copy of lender amortization schedule and receipts or canceled checks showing mortgage interest payments during the covered period;
  7. Copy of current lease agreement and receipts or canceled checks showing rent payments during the covered period; and
  8. Copy of invoices from utility companies and receipts or canceled checks showing utility payments during the covered period.

The foregoing documentation must be retained by the borrower for a period of six (6) years after the date the loan is either forgiven or repaid in full.

The form of the application can be accessed here. There is also a simplified version of the form that can be accessed here, which can be used by the borrower as an alternative to the longer form, so long as certain specified conditions are met.

For more information, or if you have questions, please contact one of Gust Rosenfeld's Business/Corporate Law attorneys.

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