The SBA has released the long-awaited loan forgiveness guidance and a Loan Forgiveness Application that Paycheck Protection Program borrowers should submit to their lenders.
Here is what we learned:
- The SBA is using a 40-hour full-time equivalency (FTE) standard rather than the 30-hour FTE standard applied to most SBA loans. However, borrowers may use a simplified method that assigns a 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work fewer hours (even if the employees worked less than 20 hours per week).
- Payroll costs “paid and incurred” over the eight-week period have been a concern. The application clarifies that payroll costs incurred but not paid during the borrower’s last pay period of the eight-week forgiveness period are eligible for forgiveness if paid on or before the next regular payroll date. To make things a little less complicated, borrowers with a biweekly (or more frequent) payroll schedule may elect to calculate eligible payroll costs using the eight-week (56-day) period that begins on the first day for their first pay period following their loan disbursement date.
- Reduction in FTEs will not reduce loan forgiveness if
- the employer made a good-faith, written offer to rehire employee(s) during the Covered Period or the Alternative Payroll Covered Period and the offer was rejected by the employee; and
- reductions related to any employee who, during the Covered Period or the Alternative Payroll Covered Period, was fired for cause, voluntarily resigned, or voluntarily requested and received a reduction in their work hours.
- Reduction in salary level must be analyzed separately by each employee. Under the Salary/Hourly Wage reduction rule, the amount of loan forgiveness may be reduced if the salary or hourly wages of certain employees were reduced by more than 25% during the Covered Period or the Alternative Payroll Covered Period as compared to the period of January 1, 2020 through March 31, 2020. This rule generally does not apply to employees with annual compensation in excess of $100,000.
- Business rent or lease payments on leases of personal property that were in force before February 15, 2020, will qualify for forgiveness.
Here is what we still do not know:
- For retirement and health care plan contributions, the instructions do not limit the amount that may be claimed to a pro-rated amount for the eight-week period. Does this mean a borrower could contribute an annual amount during the eight-week period and qualify for forgiveness? We do not think this is the case, but we hope additional guidance will be issued to provide further clarification.
- The application does not provide any additional guidance on self-rentals.
- The application also does not address the forgiveness of home office expenses for self-employed individuals, or any other issues for self-employed borrowers. We are hoping for additional guidance on forgiveness for these borrowers soon.
To view the full application and instructions, go to:
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