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PPP Loan Forgiveness Application Details

As PPP loan recipients start to take stock of how they’ve used funds over the eight-week period, many businesses are eager to move ahead with the forgiveness portion of the program. How much of the loan will be forgiven is determined by the Small Business Administration (“SBA”), as provided in the CARES Act.[1] Over the weekend, the Department of Treasury released details on the forgiveness application, which can be found here.

Fund Usage

If the PPP funds are used to make payments on (1) payroll costs, (2) interest on mortgage obligations, (3) rent/lease payments for real and personal property, and (4) utility payments, those funds will be forgiven. However, a borrower’s use of PPP funds may only be forgiven if payroll costs account for 75% or more of the payments. That means only 25% of the payments forgiven can be for used for interest on mortgage obligations, rent, and utility payments.

Note that this is the first time that rent/lease payments from personal property have been indicated under the PPP forgiveness program. 

Payroll Cost Details

Eligible payroll costs are considered paid on the date payroll checks are distributed. The payroll costs are considered “incurred” on the day the employee’s pay is earned. Payroll costs incurred but not paid during the borrower’s last pay period of the covered period are eligible for forgiveness if paid on or before the next regular payroll date. Recall that the covered period as specified in the CARES Act begins at the time of receipt of the PPP funds. This may cause difficulty for many borrowers that use bi-weekly (or more frequent) pay periods if the receipt of the loan proceeds didn’t line up with the first day of their specific pay period. Under the guidance indicated in the Forgiveness Application, borrowers may elect to use an Alternative Payroll Covered Period which would begin on the first day of the first pay period occurring after their receipt of the PPP loan funds.

The Other 25%

Payments on mortgage interest, rent, and utility payments must be paid or incurred during the covered period and paid by the next regular billing date (even if payments occur after the covered period).  Utility payments include electricity, gas, water, transportation, telephone, or internet access. 

Forgiveness Formula

Any amounts forgiven under the PPP will be considered “canceled indebtedness” by the SBA. Such canceled indebtedness will not be taxed by the federal government.

The amount forgiven cannot exceed the principal amount of the financing originally made from the SBA. Additionally, the amount forgiven will be decreased proportionately based on the reduction in the number of employees on a borrower’s payroll. This reduction will only occur if the borrower does not maintain the same number of employees the borrower listed in its’ application. There is, however, an exception: if a borrower lays off an employee, offers to rehire the employee, and the employee refuses, the reduction in the number of employees of borrower will not penalize the borrower for loan forgiveness purposes. Further, the amount forgiven will be decreased proportionately based on the reduction in the salary of employees on a borrower’s payroll, if that salary decrease is greater than 25% of employee’s original salary. 

Application & Forgiveness Approval Protocol

A borrower seeking loan forgiveness must submit a forgiveness application to its SBA lender. The lender’s application must include documentation that:

  • Verifies the number of full-time equivalent employees,
  • Includes pay rates (IRS payroll taxes, state income, payroll, and unemployment insurance filings),
  • Verifies payments on mortgage interest, rent, or utilities, and
  • Certifies the use of funds is true, correct, and complies with the CARES Act.

The verification of full-time equivalents may be calculated, at the election of the borrower, on either of the following time frames: 02/15/2019 – 06/30/2019 or 01/01/2020 – 02/29/2020. The verification of pay rates will be calculated by the employee’s most recent full quarter during which the employee was employed before the covered period. All of this documentation must be maintained for at least 6 years by the borrower.

The lender must issue the borrower a decision on the amount of the loan forgiven within 60 days after the borrower files the loan forgiveness application. All loans in excess of $2 million will be reviewed by the Department of Treasury when a loan forgiveness application is received.

[1] CARE Act Section 1106: Loan Forgiveness.

HHS Announces an Additional $20 Billion In Provider Relief Grants

The U.S. Department of Health and Human Services (“HHS”) announced an additional $20 billion in new funding for providers on October 1, 2020. Eligible providers include those that have already received Provider Relief Fund payments as well as previously ineligible providers, such as those who began practicing in 2020, and an expanded group of behavioral health providers confronting the emergence of increased mental health and substance use issues exacerbated by the pandemic. The new Phase 3 General Distribution is designed to balance an equitable payment of 2% of annual revenue from patient care for all applicants plus an add-on payment to account for revenue losses and expenses attributable to COVID-19.

DOL Proposes New Rule Regarding Independent Contractor Status - But How Will the Election Affect Its Future?

On September 22, 2020, the U.S. Department of Labor announced a new proposed rule regarding employee and independent contractor status under the Fair Labor Standards Act. The full text of the proposed rule is available here. The rule's drafters intend to reduce uncertainty and enhance the precision and predictability of the long-standing "economic reality" test, which currently relies on a multifactor balancing test.

Major Change to Franklin County, Ohio Eviction Process: Landlord Testimony Required

Although there is currently a nationwide temporary halt on all residential evictions through December 31, 2020 in place, the eviction process in Franklin County – which processes the highest number of evictions in the State of Ohio at approximately 18,000 a year – recently changed significantly.

UPDATE: Governor Dewine Signs HB 606 Granting Short Window of Immunity from COVID-19 Personal Injury Lawsuits

The Ohio General Assembly, in Am. Sub. H.B. No. 606, is in the final stages of passing a law that will prohibit lawsuits seeking damages from COVID-19. This includes injury, death, or loss to person or property if the lawsuits are based, in whole or in part, on the exposure to, or the transmission or contraction of the coronavirus, unless the defendant in the lawsuit acted intentionally or recklessly. In circumstances where this immunity does not apply, H.B. 606 prohibits such claims being aggregated and brought as a class action.

Revised Department of Labor FFCRA Guidance, Effective September 16, 2020

In response to attacks on the legality of the Department of Labor’s (“DOL”) Final Rule regarding the Families First Coronavirus Act (“FFCRA” or the “Act”), which took effect in April 2020, the Department of Labor issued new guidance on Friday, September 11th to formally address ongoing questions and concerns related to the COVID-19 legislation.