At long last, the SBA has released an application for Paycheck Protection Program loan forgiveness. 

Remember how relatively easy it was to get the PPP? Yes, the lender websites were jammed up and there was a lot of confusion about exactly how to apply.  But once you got to the right place, all you really had to do was to tell the SBA how much you spent on an average payroll for 2.5 months, then certify that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant”  and then agree to spend the funds on payroll, mortgage interest, rent and utilities.  A few weeks later, a big pile of money showed up in your bank account.

You didn’t really think that would be it, did you? (Well, you might have reasonably thought that would be it. There were rumors floating around that all loans would be forgiven as long as they were under $2M, no questions asked.)  

In fact, there are some questions.  Eleven pages worth, actually, including instructions and supplemental schedules.  

I have read the whole thing.  You’re welcome. 

If you hope to have at least part of your PPP forgiven, you will be submitting this application (or a similar version) to your lender.  

Here is what you need to know as you move toward the end of your Covered Period and get ready to apply for forgiveness. First, some good news about this “Covered Period.” 

The clock started ticking on your eight week Covered Period the day your funds were disbursed. However, you are now allowed to start that clock on the first pay period date after your disbursement.  

For instance, if your loan was disbursed on April 20, your deadline to use the funds would be June 14.  But if your normal pay period starts April 26, then you can select April 26 as your starting date and then have until June 20 to spend the funds. This is called your “Alternative Payroll Covered Period,” and this option is good news for many employers. 

You know that you must maintain the same full time equivalent number of employees (FTEs) in order to have your PPP forgiven.  You know that the SBA had not defined exactly how they would be calculating that.  The forgiveness form spells it out in mind numbing detail, complete with tables and charts, worksheets of formulas that include alternate reference periods, safe harbor provisions, exceptions, and the like.  You can skip all this math if you have not reduced the number of employees or the average paid hours of your employees between January 1, 2020 and the end of your Covered Period. You can also avoid a reduction in forgiveness if you reduced your FTEs but restored them by June 30 to the same level as on February 15. 

You know that you must pay employees at least 75% of their pay in the previous quarter, which is January 1, 2020 to March 31, 2020. I pointed out the glaring math error in this requirement (75% of 13 weeks is more than 8 weeks). The forgiveness application corrects this error by annualizing both amounts. For instance, if you paid an employee $10,000 in the first quarter, that translates to $40,000 annually. For full forgiveness, this employee’s pay must be no less than $30,000 annually during the Covered Period.  $30,000 divided by 52 weeks and multiplied by 8 weeks in the Covered Period is $4615.  If the employee is paid less than that, your forgiveness will be reduced. 

As a reminder, the cap for pay for any one employee is $100,000 annually.  This means that no single employee can have more than $15,385 forgiven, so if you were thinking of giving yourself a big bonus, forget about it. 

Besides the flexibility in determining your Covered Period, there is some more good news that is spelled out in the application:  

Payroll costs can be included if they are incurred OR paid (not just paid). The only caveat is that these incurred costs must be paid before the next payday, even if that payday falls outside of your Covered Period. 

For those creative thinkers who would like to use the funds to pay their L&I premiums which would not be due until July 31, this might have worked, except for one thing:  According to the definition of “payroll costs” state taxes must be assessed on compensation of employees.  L&I premiums are assessed on hours worked, not compensation. So L&I premiums will not qualify for forgiveness, in my opinion. I will research this more; maybe we are taking this definition too literally! 

Of course, you can use up to 25% of your PPP on rent, utilities, and mortgage interest for leases and loans that were in place before February 15, 2020. The forgiveness application is pretty straightforward regarding these expenses. As with payroll costs, the expenses can be incurred OR paid to qualify, as long as they are paid before the next regular billing date.  The only head scratcher right now is in the definition of utilities, which includes a puzzling reference to “transportation.” Some accountants, lawyers, and scholars who have been following the PPP rules are interpreting this to mean that fuel costs for business vehicles can be considered a utility.  I wish the SBA would just say what they mean.  Maybe they will do so on the next iteration of the application. I’m betting there will be one.