CARES Act: Loan Forgiveness Applications
Posted in Business Law
CARES Act: Loan Forgiveness Applications

Our previous articles summarized the new Paycheck Protection Program (“PPP”) created under the Federal CARES Act: CARES Act: Loan Applications and CARES Act: Paycheck Protection Program Loans

This client alert provides new information regarding a key aspect of the PPP program, namely the criteria which must be met to have repayment of all or part of a PPP loan forgiven. This is simply a summary of some key points, so check with your attorney at ECJ for the critical details governing PPP loan forgiveness.

The Treasury Department has published an application form for loan forgiveness under the PPP, which is available for download at https://home.treasury.gov/system/files/136/3245-0407-SBA-Form-3508-PPP-Forgiveness-Application.pdf. NOTE: The application form and instructions for loan forgiveness are significantly more detailed and complex than the original loan application form. Among the guidelines that borrowers should carefully review and follow are these:

  • The ability for borrowers with a biweekly (or more frequent) payroll to calculate eligible payroll costs using an Alternative Payroll Covered Period (“Alternative PCP”) that tracks the borrower’s payroll schedule. See Instructions for PPP Loan Forgiveness Calculation Form.
  • Payroll costs incurred but not paid during the last pay period of the Covered Period (or Alternative PCP) are eligible for forgiveness if paid on or before the next regular payroll date. Similarly, nonpayroll costs incurred but not paid during the Covered Period are eligible if paid by the next regular billing date. See Instructions for PPP Loan Forgiveness Calculation Form - “Summary of Costs Eligible for Forgiveness”.
  • Eligible nonpayroll costs to be forgiven cannot exceed 25% of the total forgiveness amount. See Instructions for PPP Loan Forgiveness Calculation Form - “Summary of Costs Eligible for Forgiveness”.
  • Subject to certain exemptions and exceptions discussed below, the amount eligible for forgiveness will be reduced if there has been a reduction in the borrower’s average weekly number of full-time equivalent (“FTE”) employees during the Covered Period (or Alternative PCP) as compared to the chosen reference period (determined pursuant to Instructions for PPP Schedule A, Line 11). See Instructions for PPP Schedule A Worksheet - “Average FTE”.
  • The amount eligible for forgiveness will also be reduced if the salary or hourly wages of employees were reduced by more than 25% during the Covered Period (or Alternative PCP) as compared to the period from January 1, 2020 to March 31, 2020. However, there may be a safe harbor available if salary or hourly wages were restored. See Instructions for PPP Schedule A Worksheet - “Salary/Hourly Wage Reduction”.
  • The borrower is exempt from the above FTE reduction if the borrower (1) reduced its FTE employee levels in the period beginning February 15, 2020 and ending April 26, 2020 but (2) restored its FTE employee levels by June 30, 2020 to its FTE employee levels from the pay period that included February 15, 2020. See Instructions for PPP Schedule A Worksheet - “FTE Reduction Safe Harbor”.
  • And there are certain exceptions to the FTE reduction, including for borrowers who have made a good-faith, written offer to rehire an employee during the Covered Period (or Alternative PCP) which was rejected by the employee. See Instructions for PPP Schedule A Worksheet - “FTE Reduction Exceptions”.
  • Borrowers must submit certain documents with the forgiveness application, including bank account statements, tax forms, documentation evidencing certain employee information, and documentation verifying the existence of nonpayroll obligations. See Documents that Each Borrower Must Submit with its PPP Loan Forgiveness Application.
  • Borrowers must also maintain certain documents for 6 years after the date the loan is forgiven or repaid in full. These include the PPP Schedule A Worksheet and supporting documents, all records relating to the loan and the forgiveness application, and documentation demonstrating material compliance with PPP requirements. See Documents that Each Borrower Must Maintain but is Not Required to Submit.

Ken Luer is the Chair of the Business & Corporate Law Department of Ervin Cohen & Jessup LLP and 
Yasmin Azodi is an Associate in the Business & Corporate Law Department.

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