This article was updated on June 17, 2020. Further updates will be made as new information becomes available.
Schneider Downs continues to track the evolving landscape of federal financial programs offered in the wake of the business disruption caused by the coronavirus crisis. On June 17, the Small Business Administration (SBA) and U.S. Department of Treasury (Treasury) released revised a loan forgiveness application, related revised application instructions and a new EZ loan forgiveness application, all primarily in response to changes that were made with the Paycheck Protection Program Flexibility Act (PPP Flexibility Act) enacted on June 5.
Changes to the Forgiveness Application and Instructions
The revised application, dated June 16, has been separated from the instructions. Revisions include changes that resulted from the PPP Flexibility Act:
- Covered Period – Throughout the application, references to the length of the Covered Period have been revised to be either (1) the 24-week (168-day) period beginning on the PPP Loan Disbursement Date, or (2) if the borrower received its PPP loan before June 5, 2020, they may elect to use an eight-week (56-day) Covered Period.
- Potential Forgiveness Amount – The description of Line 10 has been revised to 60%, in response to the change to the limit included in the PPP Flexibility Act. This is a calculation of payroll costs incurred during the Covered Period (Line 1 divided by 60%).
- Revised Certifications – Certifications have been updated to include the 60% limitation and Covered Period extension. Specifically, the dollar amount for which forgiveness can be requested if a 24-week Covered Period applies cannot exceed 2.5 months’ worth of 2019 compensation for any owner-employee or self-employed individual/general partner, and is capped at $20,833 per individual. Also, the following new certification has been added:
- If the borrower checks the box for FTE Reduction Safe Harbor 1 on PPP Schedule A, they are indicating that they were unable to operate between February 15, 2020 and the end of the Covered Period at the same level of business activity as before February 15, 2020 due to compliance with requirements established or guidance issued between March 1, 2020 and December 31, 2020 by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention or the Occupational Safety and Health Administration, related to the maintenance of standards of sanitation, social distancing or any other work or customer safety requirement related to COVID-19.
- Full-Time Equivalency (FTE) Reduction Calculation – The application has been revised to allow for three criteria that borrowers may meet to apply for a safe harbor from FTE reduction. If any of the criteria are met, a borrower’s forgiveness will be considered without any FTE reduction.
- One item to note is that Safe Harbor #2 asks borrowers to enter their total FTE as of the earlier of December 31, 2020 and the date the application is submitted, which suggests that if this safe harbor is met, a borrower may submit their forgiveness application prior to December 31, 2020, but that appears to be only available if #2 applies to the borrower.
- Salary/Hourly Wage Reduction – Like the FTE Reduction Safe Harbor #2, the safe harbor available to borrowers for restoring reductions of salary/hourly wages is the earlier of December 31, 2020 and the date the application is submitted.
EZ Forgiveness Application and Instructions
The SBA and Treasury have released a three-page EZ Forgiveness Application, available only to those borrowers that meet one of the three following criteria:
- Are a self-employed individual, independent contractor or sole proprietor who had no employees at the time of the PPP loan application, and did not include any employee salaries in the computation of average monthly payroll in their application.
- Did not reduce annual salaries or hourly wages by more than 25% during the Covered Period in comparison to the period from January 1, 2020 through March 31, 2020 for employees that made less than $100,000 on an annualized basis during any single pay period in 2019 AND did not reduce the number of employees or the average paid hours of employees between January 1, 2020 and the end of the Covered Period.
- Did not reduce annual salaries or hourly wages by more than 25% during the Covered Period in comparison to the period from January 1, 2020 through March 31, 2020 for employees that made less than $100,000 on an annualized basis during any single pay period in 2019 AND meet the safe harbor in their inability to operate during the Covered Period at the same level of business activity as before February 15, 2020 due to compliance with requirements established or guidance issued between March 1, 2020 and December 31, 2020 by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention or the Occupational Safety and Health Administration, related to the maintenance of standards of sanitation, social distancing or any other work or customer safety requirement related to COVID-19.
There are still some open questions we continue to monitor. If you need more information or assistance regarding the PPP, please reach out to any of your contacts at Schneider Downs or contact Joel Rosenthal at [email protected].
