Top Ten Takeaways from SBA’s Newly Released PPP Loan Forgiveness Application

May 18, 2020

By: Eric N. Fischer, Rod Kubat

The U.S. Department of Treasury’s Small Business Administration (SBA) released the much-anticipated Paycheck Protection Program (PPP) loan forgiveness application. PPP loan borrowers will submit this application to their lenders to request forgiveness of part or their entire PPP loan. The application itself can be found here. While the SBA noted in its press release that it would be issuing additional regulations and guidance to: (1) assist borrowers in completing the application and (2) provide guidance to lenders on their responsibilities in the forgiveness process, there are a number of takeaways from the loan application and instructions:


  1. SBA has indicated that audit threshold for loans in excess of $2 million is based on original principal amount disbursed, including affiliate loans.

  2. The SBA has provided for an Alternative Covered Period to accommodate payroll timing. In determining the payroll costs a borrower may include in its forgiveness amount, the borrower may choose either the eight weeks following loan disbursement or the eight weeks (56 days) beginning on the first day of its first pay period following loan disbursement. The Alternative Payroll Covered Period may only be used for certain expenses as indicated by the PPP Loan Forgiveness Application.

  3. Payroll costs are considered paid on the day paychecks are distributed or the borrower originates an ACH credit transaction.

  4. Utility payments include transportation costs, although it is still unclear as to what transportation costs are included.

  5. The PPP Loan Forgiveness Application provides borrowers with flexibility to include expenses paid or incurred during the applicable Covered Period. Costs eligible for forgiveness include eligible costs paid or incurred during the borrower’s applicable Covered Period, whether or not actually paid during the applicable Covered Period. For example, all employee compensation earned during the applicable Covered Period will also be an eligible cost whether or not actually paid during the applicable Covered Period—as long as the compensation is paid to the employee on or before the first payroll date following the applicable Covered Period. The same concept applies to non-payroll costs. Cash compensation paid to employees is still capped at $15,385 per employee during the applicable Covered Period. The application indicated that total payroll costs for owner-employees, self-employed individuals or partners is capped at the lesser of (i) $15,385, and (ii) 8 weeks’ worth of 2019 compensation. Additionally, group health benefits, retirement contributions and state taxes on employee wages are not allowable as payroll costs for owner-employees, self-employed individuals or partners.

  6. Business rent or lease payments extends to lease agreements for real or personal property. Mortgage interest on mortgage obligations for both real and personal property is a forgivable expense. This significantly expands the expenditures that are eligible for forgiveness for PPP borrowers.

  7. SBA clarified the requirement that 75% of PPP be used for payroll costs. The PPP Loan Forgiveness Application clarifies that a failure to spend 75% of its PPP loan on eligible payroll costs could result in a reduction in the forgiveness amount, but such failure will not be a breach of the loan requirements or result in none of the loan being forgivable as previously assumed. It also provides that the 75% test applies only to the forgiveness request and is not an absolute requirement that a borrower spend 75% of the total loan amount on payroll costs during the eight-week period. In addition, the application makes the 75% test an alternative to the Wage Reduction Test and FTE Reduction Test. Per the application, a borrower’s forgiveness amount is the lesser of: (1) eligible costs reduced by the CARES Act’s FTE Reduction Test and Wage Reduction Test, (2) the borrower’s full PPP loan amount or (3) an amount equal to the eligible payroll costs incurred or paid by the borrower during the applicable Covered Period divided by 0.75.

  8. SBA clarified that average full-time equivalency (FTE) is the average numbers of hours paid per week divided by 40 (rounded to the nearest tenth), with the maximum for each employee capped at 1.0. Borrower may elect 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. This could result in significant changes to borrowers FTE calculations.

  9. SBA expanded the FTE reduction exceptions. A reduction in FTEs does not reduce borrower’s loan forgiveness for (a) any positions for which borrower made a good faith, written offer to rehire which was rejected by the employee or (b) for any employees who were (i) fired for cause, (ii) voluntarily resigned or (iii) voluntarily requested (in writing) and received a reduction in their hours.

  10. The PPP Loan forgiveness application did not provide additional clarity on the application of or ongoing obligations related to the FTE Restoration Test or the Wage Restoration Test. We anticipate that additional guidance will be released prior to June 30, 2020. For additional discussion of the FTE Restoration Test and Wage Restoration Test see our post on Loan Forgiveness.


In the event you have follow up questions about the PPP Loan Forgiveness Application or have other questions about the Paycheck Protection Program or other COVID-19 related relief, please contact your Nyemaster Goode attorney


Visit Nyemaster Goode's Paycheck Protection Program Resource Center