In these uncertain economic times, Small Business Administration (SBA) loans under the Paycheck Protection Program (PPP) have been a vital lifeline for many small businesses trying to weather the COVID-19 pandemic. The PPP, which we talked about previously, is part of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). One of the most beneficial aspects of these loans for borrowers is that the entire loan amount can be forfeited if the proceeds are spent on salaries and other eligible expenses within the eight week period after the loan is disbursed (that is to say, the period covered).
As small businesses begin to use their loan proceeds, many are now wondering how they can ensure that the specific use of their loan will later qualify for full forgiveness. We are still waiting for the SBA and the Treasury Department to issue more detailed guidance in this regard. In the meantime, however, the new Loan forgiveness request provides Borrowers with an idea of what the pardon application process will look like, as well as the level and type of documentation Borrowers should make sure they have readily available.
As we encourage Borrowers to carefully consider the application for themselves, here are a few points that we found interesting to highlight:
- The request confirms that the eight-week period of the PPP loan begins on the first day the PPP loan is disbursed. To illustrate this point, the request explains that “if the borrower received the proceeds of his PPP loan on Monday April 20, the first day of the period covered is April 20 and the last day of the period covered is Sunday April 14. June “. However, the request also clarifies that borrowers with bi-monthly or more frequent pay schedules can choose to calculate eligible salary costs using the eight-week period starting on the first day of the first pay period following the date the loan is disbursed. PPP. This is called the “Alternative Payroll Coverage Period”.
- The application attaches a “PPP Schedule A Worksheet”, which provides borrowers with a step-by-step method for calculating eligible salary costs. Note that the instructions in this worksheet explain that for each employee, the total amount of cash compensation eligible for pardon cannot exceed $ 15,385 (which is prorated to an annual salary of 100,000 $ during the period covered).
- Regarding the eligible salary costs, the request specifies that the salary costs paid and Salary costs incurred during the Covered Period or the Alternative Payroll Covered Period are eligible for a rebate. The day the paychecks are distributed or the borrower completes an ACH credit transaction is the day the payroll is considered paid, while the day the employee’s payroll is earned is the day the payroll is considered paid. is considered committed. Salary costs incurred but not paid during the Borrower’s last pay period of the Covered Period or the Alternative Payroll Covered Period are still eligible for a rebate if the Borrower pays the costs incurred on or before the next regular pay date.
- One way to reduce the amount of the Borrower’s remittance is if the average number of full-time equivalent (FTE) employees of the Borrower during the Covered Period (or the Alternative Payroll Period) is lower. to its average number of FTE employees between February 15, 2019, and June 30, 2019, OR between January 1, 2020 and February 29, 2020. The CARES law provides that the calculation relates to the average number of FTE employees through month as calculated by the average number of FTE employees for each pay period falling in a month. However, the application anticipates that the actual amount of loan forgiveness the Borrower will receive may be reduced if the average Borrower amount weekly The number of FTE employees during the covered period (or the alternative payroll period) was lower than the borrower’s total average weekly FTE employees during the chosen reference period. Therefore, there may be a discrepancy between the law and the application.
- That said, the application provides much-appreciated clarity on what constitutes an FTE employee. Although not a definition in itself, the application provides methodologies for calculating the average number of FTE employees by giving each of the Borrower’s employees a numerical value based on the average number of employees. hours paid per week. Borrowers can choose a simplified FTE calculation method, which assigns a value of 1.0 for each employee who works 40 or more hours per week and 0.5 for each employee who works less than 40 hours per week.
- The request also explains that the borrower does not need to enter mortgage interest, rent, or utility payments made that the borrower does not wish to include in the remittance amount. In addition, for eligible non-salary costs to be waived, they must have been paid during the Covered Period or incurred during the Covered Period and paid no later than the next regular bill date (even if that bill date is later than Period covered). As a reminder, these eligible non-salary costs cannot exceed 25% of the total amount of the discount.
- Borrowers are required to submit certain documents with the rebate request, such as:
- Bank account statements (or reports from third-party payroll service providers) documenting the amount of cash compensation paid to employees;
- Payroll tax forms (or equivalent reports from a third-party payroll service provider) and state employee payroll reports for the period covered (or other period covered by payroll);
- Payment receipts, canceled checks or account statements documenting employer contributions to employee health and pension plans that are included in the remittance amount;
- Documentation showing the average number of FTE employees on the payroll per month between February 15, 2019 and June 30, 2019, OR between January 1, 2020 and February 29, 2020. Whatever the period chosen by the Borrower, it must be the same as that selected for the calculation of the discount reduction; and
- For non-salary expenses, documentation verifying the existence of obligations / services before February 15, 2020, as well as documentation relating to eligible payments made during the Covered Period.
- Borrowers are also required to keep certain additional supporting documents related to eligibility, compliance and remittance of loans. six years after the date of cancellation and full repayment of the loan.
We are monitoring the situation closely and will be sure to issue any further guidance issued by the government in the near future.
 The Borrower will be able to choose which of these two periods he wishes to compare to the Covered Period. Seasonal employers will also be able to compare their period of coverage to one of the preceding periods or to a consecutive twelve-week period between May 1, 2019 and September 15, 2019.
 Regardless of this discrepancy, both under the CARES Act and the loan forgiveness request, the borrower is exempt from reducing the loan forgiveness based on the number of FTE employees if both of the following conditions are met: (1) the borrower has reduced its FTE employee levels during the period beginning February 15, 2020 and ending April 26, 2020; and (2) the Borrower then restored its FTE employee levels on or before June 30, 2020, to its FTE employee levels during the Borrower’s pay period which included February 15, 2020.
 Seasonal employers can also provide documents for any consecutive twelve-week period between May 1, 2019 and September 15, 2019.