On May 16, 2020, the Small Business Administration (“SBA”), in consultation with the Department of the Treasury, released the Paycheck Protection Program (“PPP”) Loan Forgiveness Application (the “Application”), available here. The SBA noted that further regulations and guidance would be forthcoming from the SBA to assist borrowers and lenders with additional information on loan forgiveness and their respective responsibilities.
Schedule A to the Application outlines the documentation that must be submitted with the Application to verify payroll costs and the following nonpayroll costs eligible for forgiveness: (i) payments of interest (not including any prepayment or payment of principal) on any business mortgage obligation on real or personal property incurred before February 15, 2020; (ii) business rent or lease payments pursuant to lease agreements for real or personal property in force before February 15, 2020; and (iii) business payments for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020.
To qualify for forgiveness, both payroll costs and nonpayroll costs can be either incurred (with certain limitations) or paid during the eight-week (56-day) “covered period” of the PPP loan beginning on the loan disbursement date for such loan (or an alternate period for borrowers with bi-weekly or more frequent payroll schedules). The application form’s instructions clarified this point, which had been a source of confusion among borrowers. Nonpayroll costs may not account for more than 25% of the amount requested for forgiveness despite indications in the Office of Inspector General’s report dated May 8, 2020 that such requirement does not align with the CARES Act. All records relating to a borrower’s PPP loan must be retained in its files for six years after the date the loan is forgiven or repaid in full and the borrower must permit authorized representatives of SBA, including representatives of its Office of Inspector General, to access such files upon request. Instructions are attached to the Application to assist borrowers as they complete the Application, including guidance on how to calculate cash compensation, average full-time equivalency for an employee (“FTE”), and subtractions to the forgiveness amount for reductions in wages or employees.
Schedule A to the Application requires borrowers to disclose – by name and employee identifier – each U.S. resident who was employed by the borrower during the covered (or alternate) period and either (1) received compensation from the borrower at an annualized rate of less than or equal to $100,000 for all pay periods in 2019, (2) received compensation from the borrower at an annualized rate of more than $100,000 in any pay period in 2019 or (3) was not employed by the borrower during 2019. The borrower must disclose the cash compensation, FTE and, if applicable, salary or wage reduction of each such employee.
The form requires the borrower to indicate whether it, together with its affiliates, received PPP loans with an original principal amount in excess of $2 million. It appears that SBA will use responses to this question to determine which loans will be audited.
The borrower must make certain representations and certifications in the Application, including as to the uses of the PPP funds requested for forgiveness and that the information provided in the Application and all supporting documentation is true and correct in all material respects and that if the PPP funds were knowingly used for unauthorized purposes, the federal government may pursue recovery of loan amounts and/or civil or criminal fraud charges.
The Application provides that the borrower’s eligibility for loan forgiveness will be evaluated in accordance with the PPP regulations and guidance issued by SBA through the date of the application and that SBA may direct a lender to disapprove the borrower’s forgiveness application if it determines the borrower was ineligible.