Maximizing Paycheck Protection Program (PPP) loan forgiveness

Around Memorial Day weekend, the Small Business Administration released the PPP Loan Forgiveness Application and Interim Final Rules, which provide clarification on obtaining PPP loan forgiveness.

Here are questions and answers on some of the major issues:

Do eligible costs have to be both incurred and paid during the eight-week covered period?

No. Loan proceeds used for eligible payroll and non-payroll costs incurred before and paid during the eight-week period are eligible to be forgiven, as well as, costs incurred during the eight-week period but paid after the eight-week period, provided they are paid on the next regular payroll/billing date. Eligible non-payroll costs include rent on real and personal property, utilities and mortgage interest.

Borrowers with a biweekly or more-frequent payroll cycle may elect to use the Alternative Payroll Covered Period (APCP). The APCP is an eight-week period that begins on the first day of the first pay period following the PPP loan disbursement date. APCP can be used only for determining eligible payroll costs, not non-payroll costs.

What are eligible payroll costs for owner-employees, self-employed individuals and general partners?

The following will not be counted toward the full-time equivalent (FTE) headcount reduction:

  • Borrower made a good-faith, written offer to rehire an employee and the employee rejected the offer
  • Employees who were fired for cause
  • Employees who voluntarily resigned
  • Employees who voluntarily requested and received a reduction of their hours

If the available safe harbor is met and any reductions in salary/wage and FTEs are restored by June 30, 2020, there will be no reduction in loan forgiveness.

Does salary/wage reduction apply when there is also an FTE reduction?

No. Salary/wage reduction applies only to the portion of the decline in employee salary and wages that is not attributable to the FTE reduction. This is to ensure that borrowers are not penalized twice.

While the SBA has provided some useful guidance on PPP loan forgiveness through the Application and Interim Final Rules, many questions remain and we anticipate further guidance will be provided. Please contact Sol Schwartz & Associates at 210.384.8000 to discuss how current guidance on PPP loan forgiveness applies to your own situation.