SBA Releases Loan Forgiveness Application Form and Instructions

BY Alex Ayers
5/18/2020 - HVAC Government Affairs , COVID-19

Late Friday the Small Business Administration released the application form and instructions for businesses to apply for PPP loan forgiveness. This is the first official document released by SBA and has answered several open questions while also changing previous guidance. SBA has also said the form will be followed by additional guidance and interim rule-making to further clarify the methods SBA will use to determine loan forgiveness.

Learn more about this topic in our free webinar on June 2nd at 3:00 PM ET, presented by Alex Ayers. Register here.

Important questions answered and highlights of the form:

  • Borrowers, including those with affiliates, will need to disclose on the form if they received a loan in excess of $2 million.
    • SBA has announced they will review all loans over $2 million, including loans under that amount that exceed $2 million when combined with affiliated borrowers.
  • How should a business calculate payroll costs over the 8-week period?
    • As expected, payroll costs are accounted using an accrual method for compensation, not the date of payment, however they did switch benefit payments such as healthcare, retirement, and state and local taxes to being calculated by the payments made during the 8-week period reducing the need to prorate those costs.
  • Covered period and new “Alternative Payroll Covered Period”
    • In a change from previous guidance, SBA has created a new covered period to make it easier for employers using weekly or two-week pay periods.
    • Under previous guidance, SBA required the 8-weeks to begin the day the loan was deposited into the borrowers account, the new “Alternative Payroll Covered Period” allows a borrower to adjust the start date of the 8-week period to the first day of the following pay period after the money is deposited. For borrowers with weekly or two-week pay periods, this will simplify payroll cost calculations.
  • Owner compensation cap
    • Any compensation paid to an owner-employee, self-employed individual, or general partner cannot exceed 8-weeks work of 2019 compensation, capped at $15,385. This ensures no borrower receives a windfall from the PPP loan.
    • 2019 compensation x (8/52) = total owner compensation eligible for forgiveness, capped at $15,385
  • Reduction in full time employees due to firings, resignation, or reduction in hours
    • In an anticipated exception, the SBA will not count a reduction in employees for certain reasons: “(a) were fired for cause, (b) voluntarily resigned, or (c) voluntarily requested and received a reduction of their hours.” While the instructions do not mention retirements, we see a retirement as equivalent to a voluntary resignation.
    • If a new employee is hired to replace an employee that leaves for a covered reason, they are not counted as a reduction exception.
  • Forgiveness for re-hiring workers by June 30, 2020
    • Included in the CARES Act was a safe harbor for loan forgiveness for companies that rehire workers by June 30, 2020, we were expecting additional regulations to come out, however the application allows any company that rehires workers laid off between February 15, 2020 and April 26, 2020 by June 30 to be eligible for full loan forgiveness.
  • Calculating full-time equivalent employees
    • Employers will need to calculate their average full-time equivalent employees (FTE) over the covered period. Employers will calculate the FTE for each employee, including full-time employees, by taking the average number of hours worked and divide by 40. This is a different FTE calculation than used by rest of the federal government. Full-time workers are capped at 1.0.
  • Forgiveness for vehicle leases and other equipment leases
    • SBA expanded rent and lease forgiveness to include any equipment classified as personal property, or by IRS definition Section 1245 property. The classification of equipment includes vehicles, forklifts, photo copiers, and other leased equipment. This does not include non-business leases even though it has the misleading title of personal property.

Borrowers will be able to apply for forgiveness after the end of the 8-week covered period; however, some forgiven costs can be paid outside the 8-week window. The process for applying could easily delayed by a few weeks to gather the required documentation. SBA has said more guidance is coming which will hopefully answer any remaining questions.


Learn more about this topic in our free webinar on June 2nd at 3:00 PM ET, presented by Alex Ayers. Register here.

HARDI will continue to keep you updated on relevant issues surrounding the PPP loan program. If you have additional questions feel free to reach out to Alex Ayers, HARDI’s Director of Government Affairs.