Highlights from the loan forgiveness application include:

Changes to Long-Form Application

The key provisions from the PPPFA that necessitated the new version of the long-form application were the extension of the “covered period” during which PPP funds must be spent to be eligible for forgiveness from eight weeks to 24 weeks and the reduction of the percentage of PPP proceeds that must be spent on payroll from 75% to 60%. While these changes are mostly mechanical, some valuable insights to be drawn from the new application include:

• The $100,000 annualized wage/salary cap that applies to payroll costs for each W-2 employee of a borrower has been increased from $15,385 to $46,154 if the borrower has a 24-week covered period. If a borrower whose loan number was issued before June 5 chooses to use an eight-week covered period, the per-employee wage/salary cap is still $15,385. However, for (i) a self-employed individual, (ii) general partners, or (iii) owner-employees of an S-corporation who choose to use a 24-week covered period, the cap on owner compensation replacement does not increase anywhere near as much. While it is capped at the lower of (a) 8/52 of 2019 compensation or (b) $15,385 for an eight-week covered period, for a 24-week covered period it only is increased to the lower of (x) the 2.5-month equivalent of their applicable compensation in 2019 or (y) $20,833 (this amount is approximately equal to 2.5 months’ worth of an annualized 2019 compensation equal to $100,000).
• In addition to being limited to a proportion of 2019 compensation based on the covered period chosen, self-employed individuals, general partners, and owner-employees of an S-corporation should keep in mind other restrictions on forgivable payroll costs:
  • Health insurance contributions made on behalf of (i) a self-employed individual, (ii) general partners, or (iii) owner-employees of an S-corporation are excluded from payroll costs, because such payments are already included in their compensation.
  • Employer retirement contributions made on behalf of (i) a self-employed individual or (ii) general partners are not part of payroll costs, because such payments are already included in their compensation.
  • Although employer retirement contributions made on behalf of self-employed individuals and general partners are disallowed, they may be counted as payroll costs for “owner-employees,” although they are subject to the wage/salary cap discussed above. This is all in contrast to non-owner W-2 employees’ payroll costs, for which retirement and healthcare contributions are not subject to the $100,000 annualized wage/salary cap.
  • While the application seems to indicate that the term “owner-employee” is synonymous with “owner-employees of an S-corporation,” this is not entirely clear and employees that own equity in a borrower that is not an s-corporation (i.e., shareholders of a c-corporation or members of a limited liability company), may be subject to the restrictions placed on “owner-employees.” Additionally, even if it is assumed “owner-employee” is limited to employee-shareholders of an S-corporation, it is not clear what thresholds exist for being considered an owner-employee. For example, while many would accept that a shareholder who owns 51% of the stock of an S-corporation would be deemed an “owner-employee,” it is not clear whether shareholders who own small stakes in the S-corporation and cannot control it would also be deemed an “owner-employee.”
• Before the PPPFA and under the previous form of forgiveness application, borrowers had to restore the wages of certain employees or restore full-time equivalent (FTE) employee headcount by June 30, 2020, to take advantage of the “Salary/Hourly Wage Reduction Safe Harbor” or the “FTE Reduction Safe Harbor 2.” Under the revised application, the salary/wage levels or FTE headcount must be restored by the earlier of (a) the date the forgiveness application is submitted or (b) December 31, 2020. This change makes clear that borrowers who apply for forgiveness before December 31, 2020, may take advantage of either safe harbor when they apply for forgiveness and need not wait until December 31 to see if the safe harbor is met. This is a clarification that will be especially helpful for borrowers who utilize an eight-week covered period.
• For any borrowers which have had employee reductions due to decreased operations that are the result of public health measures note that “FTE Reduction Safe Harbor 1” was added by the PPPFA. FTE Reduction Safe Harbor 1 is a safe harbor borrowers may use if employee reductions are due to decreased operations that are the result of public health measures required by certain federal agencies in response to COVID-19 related health measures. This only covers measures required 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, but does not include restrictions implemented by other federal agencies or by any state or local governments.
• Finally, while not covered by the PPPFA, the applications for loan forgiveness make clear that borrowers who choose to utilize a 24-week covered period and have a biweekly (or more frequent) payroll schedule may also take advantage of an “Alternative Payroll Covered Period.” Rather than beginning on the day the loan is disbursed, the Alternative Payroll Covered Period begins on the first day of their first pay period following day the loan is disbursed. For example, if the Borrower is using a 24-week Alternative Payroll Covered Period and received its PPP loan proceeds on Monday, April 20, and the first day of its first pay period following its PPP loan disbursement is Sunday, April 26, the first day of the Alternative Payroll Covered Period is April 26 and the last day of the Alternative Payroll Covered Period is Saturday, October 10.

New Simplified “EZ” Application

The shorter, less detailed and ostensibly less burdensome EZ application is only three pages long, together with four pages of instructions. However, the EZ application may only be used by those PPP borrowers that fall into at least one of the following categories:

• Borrowers that are self-employed and have no employees;
• Borrowers that did not reduce the salaries or wages of certain “covered employees” by more than 25% and did not reduce the number or hours of their FTE employees (however, borrowers are allowed to ignore reductions in FTE employees that arose from an inability to rehire certain individuals and employee’s refusal to work previously reduced hours that a borrower has offered to restore); or
• Borrowers that did not reduce the salaries or wages of “covered employees” by more than 25% and experienced reductions in business activity as a result of health directives made by certain federal agencies that were related to COVID-19.

The “covered employees” described above are those who had annualized compensation of less than $100,000 in every single pay period in 2019 or were not employed in 2019. Borrowers who believe they may use the EZ application should review the requirements above carefully and confirm that they can, in fact, use the EZ application, otherwise, they run the risk of making a false certification and facing civil and criminal penalties in addition to losing forgiveness.

Importantly, the SBA has not yet released guidance on how to determine and document whether reductions in business activity are a result of health directives made by certain federal (not state or local) agencies that were related to COVID-19, so it is not clear how a borrower can claim this exception.

Disclosure of Names of PPP Borrowers

Despite early comments from leaders such as Senator Marco Rubio and Secretary Treasury Steven Mnuchin indicating that the names and amounts borrowed by all PPP borrowers would be disclosed, pushback from industry groups had recently cast doubt on whether the government would disclose any such details. However, on Friday, June 19, the SBA and Treasury released what they deemed a compromise approach, which is intended to provide the public some level of disclosure while not releasing exact loan amounts, as such exact figures could potentially be trade secrets.

Rather than identifying the exact amount of their loan, borrowers will be identified as having received a PPP loan amount that is within a range of figures. The ranges of loan amounts that borrowers will be identified by are:

• $150,000-350,000
• $350,000-1 million
• $1-2 million
• $2-5 million
• $5-10 million

For borrowers with loan amounts at or above $150,000, the SBA will disclose the name of the borrower and such borrowers’ addresses, NAICS codes, zip codes, business type, demographic data, nonprofit information and jobs supported. For borrowers with PPP loans below $150,000, SBA will not release the names of the borrowers, but the total loan amounts will be released, aggregated by zip code, by industry, by business type, and by various demographic categories.

The situation for each PPP borrower will be unique and discrete issues will come to light as a borrower’s loan forgiveness application is put together. Therefore, we suggest that individual borrowers, regardless of how long they have had PPP funds and even if not yet ready to apply for forgiveness, work through the application as best as possible on a projected basis so the borrower can better forecast the level of forgivability. Working with accountants, payroll providers, and other financial advisors may be helpful in gathering and analyzing the data required to complete the application and in getting a more clear picture of how the rules will affect forgivability.