On Friday, May 15th, the SBA released the Loan Forgiveness Application that small businesses will use to determine how much of their PPP loan will be forgiven. 

There are many guidelines and rules associated with determining each small business’s loan forgiveness and the Application and Instructions are now available to help answer some of those questions. 

The most significant items include: 

  1. Payroll paid after the 8th week – The borrower can either use the immediate 56 days following the receipt of their first loan funds, or they can choose the “Alternative Payroll Covered Period” if it better coincides with their payroll schedule. 
  2. Rent and Interest on Non-Real Estate Secured Loans and Leases – Rent and interest paid on leases and loans of non-real estate business assets and mortgages will qualify for forgiveness as long as they were in effect on February 15, 2020.
  3. Interest, Rent, and Utilities Paid in Arrears – Interest, rent, and “utilities” that occur during the eight week repayment period and are paid shortly thereafter will also qualify to be forgiven.
  4. The 75% Rule Is Not An All Or Nothing Requirement – There has been confusion over forgiveness if 75% of the loan amount is not spent on payroll, health insurance, and pension expenses. This explains that the borrower can determine their payroll, health insurance, and retirement plan expenses and then the sum of the other forgivable expenses (“rent, utilities, and interest”) cannot exceed 33 1/3% of the Payroll Amount.
  5. Reduction Ratios for Reduced Workforce and Compensation – This clarifies that if the number of employees is reduced, the amounts forgiven for rent, interest, and utilities are also reduced.
  6. When Does The 8 Week Period Start? – The 8 week period starts when your first PPP funds are received.
  7. When Are Pension Expenses “Paid And Incurred?” – The amount paid by the borrower toward employee retirement plans is based on the “Covered Period” or “Alternative Covered Period.” It is not clear yet whether the “amount paid by borrower” can cover expenses attributable to an entire year or 2019 and 2020 combined.  
  8. Independent Contractors, Proprietors, and Partners in Partnerships May Be Left Out In The Cold – The Application and Instructions confirm that these categories will not receive the benefits of loan forgiveness. 

Read the full article here.