Applying for Loan Forgiveness Under the Paycheck Protection Program

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The SBA recently released this application to obtain loan forgiveness for funds received under the Paycheck Protection Program. For your convenience, here a the link to the 11 page document. This is important because some business owners signed up for these loans without clarity.

It provides details and worksheets to answer many questions that you may have about how this program will work. I suggest printing it out and reviewing the information and financial numbers you need to be aware of, as you spend the funds received. If you project all the expenses you will incur over the Covered Period you can get an idea of if you are in compliance with the rules. This dry run provides insight now to make changes to how the funds are being spent or to set aside funds that you may want to consider paying back in future. The key is to document everything.

As I read this, a few items stood out as potentially important to my clients:

  1. EIDL Advance Amount: On Line 11 of the worksheet you will need to make adjustments for the amount received under the SBA Economic Injury Disaster Loan (EIDL) the document states that the SBA will deduct EIDL advance amounts from the forgiveness. 
  2. As an example - it looks like if you received $10,000 from the EIDL and $32,000 from PPP your PPP Forgiveness will only be $22,000
  3. In this case it would leave the borrower with a decision to make about paying the loan back. The loan terms are very generous. 1% Interest Rate over 2 years with the ability to defer payment for up to 6 months.
  4. Alternative Payroll Covered Period: I was hoping for a little more clarity on seasonal businesses or businesses who have not been able open because of state restrictions, but it does not provide much detail. However, it does allows you to push the date back to your first payroll after receiving the funds.
  5. Covered Period: Enter the eight-week (56-day) Covered Period of your PPP loan. The first day of the Covered Period must be the same as the PPP Loan Disbursement Date. For example, if the Borrower received its PPP loan proceeds on Monday, April 20, the first day of the Covered Period is April 20 and the last day of the Covered Period is Sunday, June 14. 
  6. Alternative Covered Period: For example, if the Borrower received its PPP loan proceeds on Monday, April 20, and the first day of its first pay period following its PPP loan disbursement is Sunday, April 26, the first day of the Alternative Payroll Covered Period is April 26 and the last day of the Alternative Payroll Covered Period is Saturday, June 20.
  7. Full Time Reduction Exceptions: 
  8. Indicate the FTE of (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 
  9.  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.
  10.  In all of these cases, include these FTEs on this line only if the position was not filled by a new employee. 
  11. Any FTE reductions in these cases do not reduce the Borrower’s loan forgiveness. 

Again, I think the most important action you can take now is to print the sheet and work through your numbers to make sure you clearly understand where you will stand with funds used.  

I expect, as the weeks go on, these rules will continually be refined.

Related: How to Apply for a CARES Paycheck Protection Program Loan