The new PPP loan forgiveness application is out, and it incorporates the new provisions included in the Paycheck Protection Flexibility Act (“PPP Flexibility Act”). Here are the highlights:
- The new application provides for a 24-week Covered Period to spend the PPP loan proceeds. If the loan proceeds were received prior to June 5, 2020, then the borrower has the option of using the original eight-week Covered Period. If loan proceeds are received on June 5th or later, then the 24-week Covered Period must be used.
- Under the 24-week Covered Period, the application requires the borrower to demonstrate that FTEs were the same or higher than the comparison period for the entire 24-week period, even if the funds are used up before then! Some borrowers will need to plan carefully and weigh the tradeoffs between giving up some forgiveness by sticking with the eight-week Covered Period and introducing the possibility of losing even more forgiveness if FTEs decline during the longer 24-week period.
- The previous FTE safe harbor rule stated that any reduction in forgiveness can be waived if the borrower can demonstrate that their workforce has been restored to February 15th levels by June 30th. The PPP Flexibility Act extended this deadline to December 31, 2020. In the application, there is no option to use the June 30th safe harbor date even if the borrower opts to use the 8-week Covered Period.
- The new application allows for up to 40% of the loan forgiveness to be attributable to non-payroll costs, up from 25%, as allowed for in the PPP Flexibility Act.
- Despite the 24-week Covered Period, owner’s pay is capped at 2.5 months of 2020 pay or 2019 pay, whichever is lower. In other words, the loan forgiveness application cannot include owner’s pay which is more than the amount that was received in loan proceeds due to owner’s pay. When combined with the $100,000 annual salary cap, owners pay is therefore capped at $20,833 for loan forgiveness purposes ($100,000/12 * 2.5). Employee pay, however, is not limited to 2.5 months. The maximum amount of loan forgiveness for an employee using the 24-week Covered Period is $46,154.
- The new application provides the option to use an “EZ” loan forgiveness application form (Form 3580EZ). This form eliminates the section of the application on FTE and Salary/Hourly Wage Reductions. The EZ can be used if:
- The borrower is self-employed, an independent contractor, or a sole proprietor who had no employees at the time of application and included no employees in the original loan application.
- The borrower did not reduce Salary/Hourly Wages by more than 25% during the Covered Period as compared to January 1, 2020, and March 31, 2020, AND did not reduce FTEs between January 1, 2020, and the end of the Covered Period. (This is yet another PPP time period, and it’s not clear what “did not reduce FTEs” means exactly.)
- The borrower did not reduce Salary/Hourly Wages by more than 25% during the covered period as compared to January 1, 2020, and March 31, 2020, AND the borrower can certify that they were unable to restore business operations to pre-pandemic levels because the business was following federal workplace requirements or guidelines related to COVID-19, such as social distancing and customer safety needs.
We will continue to keep you posted as new information becomes available.