On May 15, 2020, the Small Business Administration released the Paycheck Protection Program Loan Forgiveness Application.  For a quick refresher on loan forgiveness, here is The Checklist for Getting your CARES Act Loan Forgiven.

When applying for forgiveness, borrowers must include exact payroll cost amounts, business mortgage interest payments, business rent or lease payments, and business utility payments for the forgiveness calculation.  It is crucial that businesses and employers keep a thorough record of adjustments that were made for full-time employees and any salary or wage reductions.  These numbers must be disclosed on the forgiveness application.  

What to Submit?

Payroll: Schedule A asks for cash and non-cash compensation payroll costs during the covered period.  Borrowers must include documentation verifying the eligible cash compensation and non-cash benefit payments from the covered period. This includes:

• Bank account statements or third-party payroll service reports documenting the amount of cash compensation paid to employees;
• Tax forms for the periods that overlap with the covered period (payroll tax filings and state quarterly business and individual employee wage reporting and unemployment insurance tax filings); and
• Payment receipts, cancelled checks, or account statements documenting the amount of any employer contributions to employee health insurance and retirement plans that the borrower included in the forgiveness amount.

Employee Information: Full-time equivalent (“FTE”) employee documentation showing (at the election of the borrower):

• The average number of FTE employees on payroll per month employed by the borrower between February 15, 2019 and June 30, 2019;
• The average number of FTE employees on payroll per month employed by the borrower between January 1, 2020 and February 29, 2020; or
• In the case of a seasonal employer, the average number of FTE employees on payroll per month employed by the borrower between February 15, 2019 and June 30, 2019; between January 1, 2020 and February 29, 2020; or any consecutive twelve-week period between May 1, 2019 and September 15, 2019.

Nonpayroll: Documentation verifying existence of the obligations/services prior to February 15, 2020 and eligible payments from the covered period.  These include:

• Business mortgage interest payments: Copy of lender amortization schedule and receipts or cancelled checks verifying eligible payments from the covered period; or lender account statements from February 2020 and the months of the covered period through one month after the end of the covered period verifying interest amounts and eligible payments. 
• Business rent or lease payments: Copy of current lease agreement and receipts or cancelled checks verifying eligible payments from the covered period; or lessor account statements from February 2020 and from the covered period through one month after the end of the covered period verifying eligible payments. 
• Business utility payments: Copy of invoices from February 2020 and those paid during the covered period and receipts, cancelled checks, or account statements verifying those eligible payments. 

Reductions and Exceptions

As we know, the actual amount of loan forgiveness that the borrower is eligible to receive may be reduced depending on whether the salary or hourly wages of certain employees during the covered period was less than during the period from January 1, 2020 to March 31, 2020.  If the borrower restored salary/hourly wage levels, the borrower may be eligible for elimination of the Salary/Hourly Wage Reduction amount.  The SBA has attached a worksheet for borrowers to complete to determine whether the borrower’s wage reduction meets the exception.

The forgiveness amount may also be reduced depending on how many FTE employees the borrower was able to employ as compared to the same time last year.  The borrower is exempt from this reduction in loan forgiveness if both of the following conditions are met: (1) the borrower reduced its FTE employee levels in the period beginning February 15, 2020, and ending April 26, 2020; and (2) the borrower then restored its FTE employee levels by not later than June 30, 2020 to its FTE employee levels in the borrower’s pay period that included February 15, 2020.

How to Submit?

Borrowers will submit their loan forgiveness applications directly through their lenders.  Lenders may release further guidance on when to submit the application and how to do so.  Borrowers and employers who were given PPP loans should be vigilant in reviewing the forgiveness application and including all necessary information.