The eight-week “covered period” for the initial group of Paycheck Protection Program (PPP) Borrowers is nearing an end, and such Borrowers have been waiting for the Small Business Administration’s (SBA) promised guidance pertaining to loan forgiveness. On May 15, 2020, the SBA, in consultation with the Department of Treasury, released the PPP Loan Forgiveness Application, along with detailed instructions for the application. The SBA also issued a statement indicating that it “will also soon issue regulations and guidance to further assist borrowers as they complete their applications, and to provide lenders with guidance on their responsibilities.” In the meantime, and subject to that additional guidance, there are a number of important immediate takeaways to highlight.
Alternative Payroll Covered Period
For purposes of loan forgiveness, the “covered period” is the 8-week period beginning on the date the PPP loan funds are disbursed. Payroll costs incurred and payments made during the “covered period” are eligible for forgiveness. However, many Borrowers have payroll periods that do not align with this 8-week covered period. Fortunately, the SBA has provided an option for Borrowers to calculate payroll costs using an “alternative payroll covered period” that aligns with Borrowers’ regular payroll cycles. Borrowers with a biweekly (or more frequent) payroll schedule may elect to calculate eligible payroll costs using the 8-week period that begins on the first day of their first pay period following their PPP loan disbursement date.
Eligible Payroll and Non-Payroll Expenses Paid or Incurred
The SBA has given Borrowers the flexibility to include eligible payroll and non-payroll expenses paid or incurred during the applicable 8-week period after receiving their PPP loan. Payroll costs are considered “paid” on the day the paychecks are distributed or the Borrower originates an ACH credit transaction. Payroll costs are considered “incurred” on the date that the employee’s pay is earned. Payroll costs incurred but not paid during the Borrower’s last pay period of the “covered period” or the “alternative payroll covered period” are eligible for forgiveness if paid on or before the next regular payroll date.
An eligible non-payroll cost must be paid during the “covered period” or incurred during the “covered period” and paid on or before the next regular billing date, even if the billing date is after the “covered period.” It is still the case that eligible non-payroll costs cannot exceed 25% of the total forgiveness amount. It is also important to note that the “alternative” period applicable to payroll costs cannot be used to determine non-payroll expenses included in the forgiveness calculation.
Additional Application Details
Some additional highlights from the SBA’s Forgiveness Application and instructions include:
We continue to monitor these developments and await the additional promised regulations and guidance from the SBA.