The Payroll Protection Program (PPP) is a cornerstone of the Coronavirus Aid, Relief, and Economic Security (CARES) Act signed into law in March. Intended to provide financial relief for small businesses negatively impacted by the COVID-19 pandemic, the PPP has also generated a lot of questions as to which expenditures can be forgiven, and how small businesses accessing relief can maximize their loan forgiveness.

On May 15, the Small Business Administration (SBA) released the PPP Loan Forgiveness Application, which provides guidance and some much-needed answers to business owners’ questions.

What does the PPP Loan Forgiveness Application include?

The application includes three main components:

1. A loan forgiveness calculation form that acts as an overview for all of the potentially forgivable expenses, both payroll and non-payroll, as well as a place to list borrower certifications.
2. PPP Schedule A, which is a form that calculates your payroll costs and any potential reduction in forgiveness based on whether businesses reduced their workforce or wages.
3. A worksheet to help businesses complete PPP Schedule A. This worksheet has tables for listing each employee along with wage information.

What are the key takeaways for small business owners?

The PPP Loan Forgiveness Application addresses several outstanding questions, including the following clarifications:

• PPP loans are eligible for forgiveness if they are used for payroll costs incurred during the Covered Period or simply paid during the Covered Period. This means businesses can be forgiven if they spend money during the Covered Period on payroll even if the costs were incurred before the covered period began.
• Businesses that have a bi-weekly or more frequent payroll schedule can also select an Alternative Payroll Covered Period to calculate their covered period for payroll costs in a way that better reflects their payroll structure. This Alternative Payroll Covered Period only applies to payroll cost, not non-payroll costs.
• Eligible non-payroll costs (mortgage interest payments, rent or lease payments, and utility payments) can be forgivable if they are paid during the Covered Period, or if they are incurred during the Covered Period and paid before the next billing date, even if that is after the Covered Period ends. Keep in mind, however, that payroll costs must still account for 75% of loan forgiveness.
• Businesses that had cut full-time employees but rehire them by June 30, 2020 can be exempt from having their loan forgiveness reduced. This applies to businesses that reduced their full-time employee count between February 15 and April 26, and rehire to the February 15 level by June 30.

The new PPP Loan Forgiveness Application also includes instructions on how to calculate full-time equivalency (FTE) employees, as well as guidance on required documentation. While there are still some open questions, the Application is a valuable tool for small businesses seeking to maximize their PPP loan forgiveness.

As always, this information is new and just touches upon some of the key highlights. Please contact us using the link below for any further questions and/or to arrange a time to discuss your situation or questions in more detail.

Thank you!

Best regards,

Matt Brady, CPA
President