PPP Loan Forgiveness, the Paycheck Protection Program Flexibility Act, and an Application Calculator

The U.S. Small Business Administration (“SBA”) has released an updated PPP Loan Forgiveness Application (and related instructions) and a shorter EZ Form application for certain qualified borrowers and related instructions with respect to the Paycheck Protection Program (“PPP”). These releases followed the enactment of the Paycheck Protection Program Flexibility Act (“PPPFA”) which amended the previously enacted CARES Act.  The SBA has also released Interim Final Rule as to PPP loan forgiveness, which has been revised by Revisions-to-First-Interim-Final-Rule (as revised, “IFR”) and the PPPFA will guide PPP borrowers as to use of loan funds and applications for forgiveness.  Below we discuss some key considerations to keep in mind as you review the application, IFR, and PPPFA in relation to the PPP loan forgiveness process. 

In addition, please download our PPP Loan Forgiveness Application Calculator, which has been updated following the PPPFA enactment and release of the IFR and applications/instructions.  This calculator was created to assist companies with processing the calculations in the long form PPP Loan Forgiveness Application and related PPP Schedule A, although it may also help borrowers using the short EZ form as well. Please carefully review this advisory and the cautionary statements in the calculator regarding its use. 

Note that June 30, 2020 remains the deadline for PPP loan applications so if you are still considering a PPP loan be sure to apply on or before such date.

  • Some key PPP changes and questions answered by the PPP Loan Forgiveness Applications/Instructions, IFR and PPPFA
  • Extension of Restoration and Covered Periods.  The PPPFA has extended the end of the restoration period in relation rehiring and wages/salary from June 30, 2020 to the earlier of December 31, 2020 or the date a borrower submits its forgiveness application.  The act also extended the ‘covered period’ for determining forgiveness calculations following loan disbursement from eight weeks to the earlier of 24 weeks or December 31, 2020.  A borrower with an existing PPP loan as of June 5, 2020 may still elect to use the eight week period.  These extensions are designed to ensure that most borrowers will now qualify for forgiveness such that if a borrower spends 100% of the loan on payroll costs and other eligible expenses during the twenty-four-week period, at least 60% on payroll costs as noted below, and its full-time equivalency (FTE) count and certain salaries (or wages) on December 31 equals or exceeds those amounts as of February 15, the borrower’s entire loan amount should be forgiven.  
  • Compensation Caps – Owners.   The compensation included in the forgiveness amount for any owner-employee or self-employed individual/general partner may not exceed (i) 8 weeks’ worth of such individual’s 2019 compensation, capped at $15,385 per individual, if a borrower has elected an 8-week covered period, and (ii) 2.5 months’ worth of such individual’s 2019 compensation, capped at $20,833 per individual, if a borrower has elected a 24-week covered period.
  • Compensation Caps – Employees.   The compensation included in the forgiveness amount for any employee may not exceed $15,385 per individual, if a borrower has elected an 8-week covered period. If a borrower has elected a 24-week covered period, the forgiveness amount may not exceed $46,154 per individual.
  • Payroll Costs Forgiveness Requirement. The requirement that at least a certain percentage of the PPP loan amount be used on payroll costs will be interpreted to pertain to forgiveness only. The updated interim final rules confirm that payroll costs must equal at least 60% of the amount forgiven, which lowered the percentage requirement from the previous 75%.  So in order to receive full forgiveness, at least 60% of the PPP loan must be used on payroll costs and not more than 40% of the loan forgiveness amount may be attributable to non-payroll costs.  In the event that more than 40% of the loan forgiveness amount would otherwise be attributable to non-payroll costs, the forgiveness amount would be reduced to ensure the 60% requirement is met.
  • Paid and Incurred. The application has clarified that a company can apply for forgiveness as to costs that are paid during the applicable covered period, as well as those that are incurred but not paid during the covered period so long as paid and paid on or before the next regular payroll date or billing date after the covered period, in each case subject to the overall limitations.  As to payroll costs, these are generally incurred on the day the employee’s pay is earned (i.e., on the day the employee worked). For employees who are not performing work but are still on the borrower’s payroll, payroll costs are incurred based on the schedule established by the borrower (typically, each day that the employee would have performed work).
  • FTE. The application provides companies two alternative methods when calculating average FTE.  A Company can choose either to (i) enter the average number of hours paid per week, divide by 40, and round the total to the nearest tenth, for each employee (with a maximum for each employee at 1.0), or (ii) use 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 may be used at the election of the Borrower. Since a company will have to use the same selected method throughout the application, it should carefully assess each method and determine which provides the most advantageous forgiveness outcome for it.
  • Alternative Payroll Covered Period.  The updated application establishes an alternative period for companies to consider using with respect to certain payroll and related calculations.  This was done out of administrative convenience to allow borrowers with a biweekly (or more frequent) payroll schedule to calculate eligible payroll costs using the covered period that begins on the first day of their first pay period following their PPP Loan disbursement date (the “Alternative Payroll Covered Period”), as opposed to the covered period that begins on the loan disbursement date (the “Covered Period”).  Borrowers who elect to use the Alternative Payroll Covered Period must apply the Alternative Payroll Covered Period consistently as provided in the application and certain calculations, such as non-payroll expenses, will be calculated for the Covered Period only.
  • FTE Reduction Exceptions. Further expanding on guidance issued by the SBA prior to the application being released, to ensure that a borrower’s forgiveness is not reduced in relation to certain FTE reductions,the application and PPPFA provide that a borrower’s forgiveness amount will not be reduced with respect to:
    • -Any positions for which the borrower made a good-faith, written offer to rehire an employee (or if applicable restore the reduced hours) during the applicable period which was rejected by the employee (so long as the offer was for the same salary/wages and same number of hours during last pay period prior to reduction or separation) and the borrower informed the applicable state unemployment office of the rejected offer within 30 days of the rejection;
    • -Any employees who during the applicable period (a) were fired for cause, (b) voluntarily resigned, or (c) voluntarily requested and received a reduction of their hours;
    • positions that remain unfilled because the borrower cannot in good faith rehire the applicable former employees or find qualified employees with respect thereto; and
    • -Positions that remain unfilled due to the borrower’s good faith inability to restore operations to the levels of February 15, 2020 due to compliance with requirements established 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 during the period beginning on March 1, 2020, and ending December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19.
  • Seasonal Employers. The IFR broadenedthe baseline test period alternatives for seasonal employers for determining FTE.  Initially, a seasonal employer had to use February 15, 2019 through June 30, 2019, but can now select between (a) February 15, 2019 through June 30, 2019, (b) January 1, 2020 through February 29, 2020, or (c) any consecutive 12-week period between May 1, 2019 and September 15, 2019.
  • Salary/Wage Reductions. The IFR confirmed that in the event that the salary/wages are reduced by more than 25% from the applicable period, then just the excess above 25% is not subject to forgiveness as the initial 25% reduction is exempted.
  • Loan Maturity.  The PPPFA has provided that for PPP loans made after June 5, 2020, the maturity date is a minimum of five years instead of two.  For loans made prior to June 5, 2020, the lender and borrower can amend the related documents to extend maturity to five years.
  • Payment Deferral.  In accordance with the PPPFA, the PPP loan repayment deferment period has been extended from six months following loan disbursement, to the earlier of (i) date the borrower’s loan forgiveness amount is remitted to the lender by the SBA (or SBA notifies the lender that forgiveness is not allowed), and (ii) if the borrower fails to apply for forgiveness within 10 months of the expiration of its covered period, the day that is 10 months after the last day of such covered period.
  • Payroll Taxes.  The PPPFA also amended the CARES Act to allow recipients of PPP loan forgiveness to defer payroll taxes as provided in the CARES Act for employers that did not obtain PPP loans or did not receive any forgiveness of their PPP loans.
  • You Can Apply for Forgiveness Prior to End of Covered Period.  A borrower is permitted to apply for forgiveness prior to end of its covered period.  As such, if a borrower has a 24 week covered period, but has paid or incurred sufficient costs prior to the end of such period, it may apply for forgiveness at that time. 
  • EZ Application Form. There is now an EZ short forgiveness application form that certain borrowers may use.  This EZ form generally is available for borrowers that either (i) are self-employed/independent contractor/sole proprietor  without employees at the time of the PPP loan application, (ii) did not reduce the salaries or wages of their employees by more than 25%, and did not reduce the number or hours of their employees, or (iii) experienced reductions in business activity as a result of health directives related to COVID-19, and did not reduce the salaries or wages of their employees by more than 25%.  See the related instructions for further details on eligibility.
  • Unforgiveable? Stay mindful of the ways that your loan may not be forgiven, and ways you can maximize forgiveness.

Here are a few ways that all or a portion of your PPP loan may not be forgiven:

  • Breach, Default, or Misrepresentation.All or a portion of your PPP funds may be deemed unforgivable due to a breach or default under the SBA promissory note or a misrepresentation in respect to your PPP loan application or any of the related materials, including as to eligibility.
  • Use of Proceeds.If you use the loan proceeds for anything other than payroll costs and qualified mortgage interest, rent, and utilities payments, then the amount used for the other allowable use, such as to pay interest on other qualified debt, may not be forgiven.  Also to the extent your PPP funds are used for any non-permitted use then they will need to repaid immediately, such as payment of excess compensation, principal debt balances, certain federal withholding taxes, foreign compensation, or using loans funds for certain qualified sick and family leave wages for which credit is allowed under the Families First Coronavirus Response Act.
  • Reduction in FTE.If your average number of FTE reduce from the baseline, your PPP forgiveness amount is reduced in proportion to such reduction if you are unable to avail yourself of the applicable FTE restoration/cure/rehiring rules.  Even if your FTE count reduces which would otherwise proportionally lower your forgiveness amount, the CARES Act has a provision that disregards such reduction in the event that you did have a FTE headcount reduction between February 15, 2020 and April 26, 2020, and such reduction is restored in full through FTE replacement or rehiring by the earlier of when you apply for forgiveness or December 31, 2020.   
  • Employee Wage Cuts.  Remember that the amount forgiven will be reduced by the amount of any reduction during the covered period of greater than 25% in total salary or wages of any employee that made less than $100,000 annualized in 2019, and you are unable to avail yourself of the salary/wage restoration/cure rules.  Even if the result of the 25% salary/wage calculations would otherwise lower your forgiveness amount, the CARES Act has a provision that disregards such reduction in the event that the applicable employees whose rate of salary/wages was decreased between February 15, 2020 and April 26, 2020, have such rate restored in full by the earlier of when you apply for forgiveness or December 31, 2020.
  • Processing the PPP Loan Forgiveness Application

The long form application includes four items, including the PPP Loan Forgiveness Calculation Form and PPP Schedule A, each of which will need to be provided to your PPP lender.  The long form application also includes a PPP Schedule A Worksheet, to be completed for all employees to assist with properly calculating the PPP Schedule A items.  The short form application only includes a PPP Loan Forgiveness Calculation Form.   Each application form also includes an optional demographical information form.   The respective application instructions also provide clarity on certain documents that will need to be submitted with the application as well as some that must be maintained by the borrower but not submitted. 

Regardless of the form utilized, you will need to submit a forgiveness request to your lender that includes a certification during the submission period which will be described in your loan documents.  The lender has 60 days to review the application and submit its forgiveness decision to the SBA, whether as to all or some of the applied amount, and subject to any SBA review of the loan and documents in its discretion,  the SBA shall pay the approved amount not later than 90 days from the date of the lender’s decision. The SBA will be releasing further guidance on its procedures for reviewing loan applications and loan forgiveness applications.

Prepared by Chad Porter, Partner and Vice-Chairman of Finance, Mark Manning, Partner, and Amanda Adam, Associate.


Chad Porter is a partner in Burns & Levinson’s Finance, Middle-Market M&A and Private Equity, Securities Law, and Business & Transactions groups. He specializes in mergers and acquisitions, commercial financing arrangements, private equity investments and transactions, securities transactions and compliance, general business affairs, and business disputes. He can be reached at cporter@burnslev.com or 617.345.3686.

Mark Manning is a partner in Burns & Levinson’s Corporate, Venture Capital & Private Equity, and Intellectual Property Groups. Clients look to Mark Manning to achieve the best results in their most complex commercial transactions and internal business and legal issues. He regularly leads merger and acquisition transactions on behalf of both buyers and sellers, providing him with deep insight into what drives both sides of a deal – a perspective that helps him efficiently facilitate practical solutions to issues that keep deals from getting done. He can be reached at mmanning@burnslev.com or 617.345.3468.

Amanda J. Adam is an associate in the firm’s Corporate Group. Amanda’s practice focuses primarily on SEC compliance, mergers, acquisitions, private equity and venture capital investments, and other general corporate matters in a broad range of industries, including cannabis, life sciences, energy, and wellness companies. She can be reached at aadam@burnslev.com or 617.345.3556.

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