The SBA just released new revised loan forgiveness application forms integrating changes from the PPP Flexibility Act. The form is largely the same with some specific changes highlighted here.

EZ Form

If they meet certain requirements, borrowers can fill out this new shorter and less time consuming EZ Form. Borrowers may use the EZ form if any of the following are met:

• borrower is self-employed, an independent contractor, or sole proprietor who had no employees at the time of the PPP loan application
• borrower did not reduce annual salary or hourly wages of any employee by more than 25% during the covered period as compared to the first quarter of 2020; and either (i) the borrower did not reduce the number of employees or average paid hours between January 1, 2020 and the end of the covered period, or (ii) the borrower meets the new FTE safe harbor exemption

New FTE Safe Harbor Exemption

The new application adds the FTE safe harbor exemption added by the PPP Flexibility Act that states a borrower is exempt from the reduction in loan forgiveness and doesn’t have to lower its FTE count if the borrower was unable to operate during the covered period at the same level of business activity as before February 15, 2020 due to compliance with requirements established by the Secretary of Health and Human Services, Director of the Centers for Disease Control and Prevention or the Occupational Safety and Health Administration related to the maintenance of standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19.

Covered Period Expansion

The application updates the definition of covered period to include the increase from the 8-week to the 24-week covered period. Borrowers who received funds prior to June 5, 2020 can still elect to use the 8-week covered period. The new application also keeps the alternative payroll covered period for administrative convenience so that borrowers with a biweekly or more frequent payroll can elect a covered period that starts on the first day of their first pay period following when they received PPP funds. 

Increase in Payroll Cap for 24-Week Covered Period

For owner-employees, self-employed individuals and general partners, the amount of payroll expense forgiven during the 8-week period was limited to $15,385 but when the 24-week period is used, the cap is now $20,833. This increase allows for owners to receive the 2.5-month equivalent of the $100,000 cap on an individual’s compensation.

For non-owner employees, if the covered period used is 24 weeks instead of the 8-week period, the cap on each non-owner employee is $46,154 as opposed to the previous $15,385. So even though owners are still capped at 2.5 months, you are allowed to pay non-owners at a higher cap rate over the entire 24-week period.

Documentation

The application further extends the amount of documentation borrowers must maintain for their own records to include documentation regarding job offers and refusals or the inability to hire through December 31, 2020 along with documentation supporting the new safe harbor standard listed above.

Early Application

The SBA’s presentation about the new application discussed that a borrower using a 24-week period that expended all of its PPP funds within 12 weeks could apply early and didn’t need to wait until the end of the covered period. It is unknown at this time how borrowers submitting an application early would account for the FTE count during the Covered Period if they apply early and then have to let people go before the end of the 24 week period. Would this borrower be subject to a forfeiture of a portion of the forgiveness?

We believe there are still more rules to come but this updated application addressed some of the immediate changes resulting from the PPP Flexibility Act.