Paycheck Protection Program Loan Forgiveness Update

May 18, 2020 | Insights



By Lindsey Berwick & John Wittenberg

CARES Act and PPPHCE Act – Paycheck Protection Program Funding

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, providing emergency economic stimulus to small businesses and certain eligible recipients in response to the economic distress caused by the COVID-19 pandemic, was signed into law. The CARES Act made available, through the Keeping American Workers Paid and Employed Act, $349 billion in loans under the Paycheck Protection Program (PPP) (under the SBA 7(a) loan program).

On April 24, 2020, the Paycheck Protection Program and Health Care Enhancement (PPPHCE) Act, which, among other things, amends and supplements the CARES Act by increasing funding to small businesses, states, municipalities, and hospitals, including an additional $310 billion to the PPP, was signed into law. The PPPHCE Act did not generally alter the PPP loan eligibility requirements, application process, or loan forgiveness rules, and it did not change the SBA affiliation rules that apply to PPP loan applicants.

Authorized Use of PPP Loan Proceeds

  • Payroll costs (capped at $100,000 on an annualized basis for each employee);
  • Costs related to the continuation of group health care benefits during periods of paid sick, family, or medical leave, and insurance premiums;
  • Payments of interest on any mortgage obligation (principal payments are excluded) incurred before February 15, 2020;
  • Rent payments, under lease agreements that were in effect before February 15, 2020;
  • Utilities, for which service began before February 15, 2020;
  • Servicing interest on other debt obligations incurred before February 15, 2020; and
  • Refinancing an SBA Economic Injury Disaster Loan made between January 31, 2020, and April 3, 2020.

PPP Loan Forgiveness Application and Eligible Costs

On May 15, 2020, the SBA published the Paycheck Protection Program Loan Forgiveness Application (“Application”). The Application does not answer all of the questions surrounding forgiveness of a PPP loan, but it does provide some welcomed guidance on how a borrower may apply for forgiveness and the requirements to be satisfied in connection with such forgiveness. We expect supplementary guidance on loan forgiveness from the SBA in the form additional rules or FAQs will provide clarification on many of the lingering questions concerning the mechanics of, and technicalities associated with, loan forgiveness.

  • Applying for Loan Forgiveness: Although the SBA published the Application and mandated its use for PPP loan forgiveness, borrowers should contact their PPP lender for more information on how to submit the Application and the overall forgiveness process. In addition, certain PPP lenders may be permitting their borrowers to submit the Application and supporting documentation electronically.
  • Timing of Decision.  The CARES Act requires that the PPP lender make a decision on loan forgiveness not later than 60 days after the date the PPP lender receives the Application.
  • Eligible Costs for Forgiveness:  Borrowers are eligible for forgiveness for the following costs:
    • Payroll Costs incurred and paid during the Covered Period or Alternative Payroll Covered Period (each as defined below).
      • Date Incurred: Payroll Costs are considered incurred on the day that the employee’s pay is earned.
      • Date Paid: Payroll costs are considered paid on the day that paychecks are distributed or the borrower originates an ACH credit transaction.
      • Payroll Costs incurred but not paid during the borrower’s last pay period of the Covered Period or Alternative Payroll Covered Period are eligible for forgiveness if the Payroll Costs are paid on or before the next regular payroll date (otherwise, Payroll Costs must be paid during the Covered Period or the Alternative Payroll Covered Period).
      • For each individual employee, the total amount of cash compensation eligible for forgiveness may not exceed an annual salary of $100,000, as prorated for the Covered Period.
      • The dollar amount for which forgiveness is requested may not exceed 8 weeks’ worth of 2019 compensation for any owner-employee or self-employed individual/general partner, capped at $15,385 per individual.
      • See Interim Final Rule 1 for more information on calculating Payroll Costs.
    • Nonpayroll Costs
      • Eligible nonpayroll costs:
        • Interest payments on any business mortgage loan on real or personal property incurred before February 15, 2020;
          • prepayments are not eligible for forgiveness
          • principal payments are not eligible for forgiveness
        • Business rent or lease payments pursuant to lease agreements for real or personal property in force before February 15, 2020; and
        • Business utility payments for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020.
      • Eligible nonpayroll costs must be (i) paid during the Covered Period (NOT the Alternative Payroll Covered Period) or (ii) incurred during the Covered Period (NOT the Alternative Payroll Covered Period) and paid on or before the next regular billing date, even if the billing date is after the Covered Period.
      • Eligible nonpayroll costs cannot exceed 25% of the total forgiveness amount.
  • Covered Period for Eligible Forgiveness Expenses
    • Covered Period:  The Covered Period is the 8-week (56-day) period beginning on the first date on which a borrower received PPP loan proceeds (“PPP Loan Disbursement Date”). If a borrower received multiple disbursements of its PPP loan proceeds, then the PPP Loan Disbursement Date is the date the borrower first received a disbursement of its PPP loan proceeds. For example, if a borrower received a portion of its PPP loan proceeds on Monday, April 20th, and the remainder of the PPP loan proceeds on Thursday, April 30th, the first day of the Covered Period is April 20th, and the last day of the Covered Period is Sunday, June 14th.
    • Alternative Payroll Covered Period:  Borrowers with a biweekly (or more frequent) payroll schedule may elect to calculate eligible payroll costs using the 8-week (56-day) period that begins on the first day of the borrower’s first pay period following the PPP Loan Disbursement Date. For example, if a borrower received its first disbursement of PPP loan proceeds on Monday, April 20th, and the first day of its first pay period following such PPP Loan Disbursement Date is Sunday, April 26th, the first day of the Alternative Payroll Covered Period is April 26th, and the last day of the Alternative Payroll Covered Period is Saturday, June 20th.

Reductions in Employees or Salary & Wages

Borrowers should carefully review the Instructions included with the Application to complete the Schedule A Worksheet to determine whether there will be a reduction in the loan forgiveness amount based upon a reduction in the number of full-time equivalent employees (“FTEs”).

FTEs are determined based upon a 40-hour work week.

  • Exceptions for Reduction in FTEs:
    • A borrower’s loan forgiveness amount will not be reduced for a reduction in the number of FTE reductions for those employees who (i) rejected a good-faith, written offer by the borrower to rehire the employee during the Covered Period or Alternative Payroll Covered Period or (ii) during the Covered Period or Alternative Payroll Covered Period:
      • were fired for cause;
      • voluntarily resigned; or
      • voluntarily requested and received a reduction of their hours.
  • FTE Reduction Safe Harbor:  A borrower is exempt from the reduction in loan forgiveness based on FTE employees if the borrower (i) reduced its FTE employee levels in the period beginning February 15, 2020, and ending April 26, 2020, and (ii) restored its FTE employee levels by not later than June 30, 2020, to its FTE employee levels in the borrower’s pay period that included February 15, 2020.

Other Important Considerations

  • Certifications: The borrower must certify the following on the Application:
    • The dollar amount requested for forgiveness:
      • was used to pay costs that are eligible for forgiveness;
      • includes all applicable reductions due to decrease in the number of FTEs and salary/wage reductions;
      • does not include nonpayroll costs in excess of 25% of the amount requested; and
      • does not exceed 8 weeks’ worth of 2019 compensation for any owner-employee or self-employed individual/general partner, capped at $15,385 per individual.
    • Acknowledge that if the funds were knowingly used for unauthorized purposes, the federal government may pursue recovery of loan amounts and/or civil or criminal fraud charges.
    • Borrower has accurately verified the payments for the eligible payroll and nonpayroll costs for which borrower is requesting forgiveness.
    • Borrower has submitted the required documentation verifying payroll costs and nonpayroll costs.
    • The information provided in the Application and supporting documentation is true and correct in all material respects and that knowingly making a false statement to obtain forgiveness of the PPP loan is punishable under the law by imprisonment of not more than 30 years and/or a fine of not more than $1,000,000.
    • The tax documents submitted by the borrower to the PPP lender are consistent with those the borrower submitted/will submit to the IRS and/or state tax or workforce agency.
    • Acknowledgment that the SBA may request additional information for the purposes of evaluating the borrower’s eligibility for the PPP loan and for loan forgiveness, and that the borrower’s failure to provide information requested by the SBA may result in a determination that the borrower was ineligible for the PPP loan or a denial of the borrower’s loan forgiveness application.
  • Recordkeeping:  Borrowers must maintain the following records for 6 years after the date the loan is forgiven or repaid in full (all of which may be inspected by authorized representatives of the SBA, including its Office of Inspector General):
    •  PPP Schedule A Worksheet, together with documentation supporting:
      • The listing of each individual employee in PPP Schedule A Worksheet Table  1, including the Salary/Hourly Wage Reduction calculation;
      • Each individual employee in PPP Schedule A Worksheet Table 2; specifically, that each listed employee received during any single pay period in 2019 compensation at an annualized rate of more than $100,000;
      • Any employee job offers and refusals, firings for cause, voluntary resignations, and written requests by any employee for reductions in work schedule; and
      • FTE Reduction Safe Harbor.
    • Records relating to borrower’s PPP loan and PPP loan application, including documentation supporting borrower’s good faith certification as to the necessity of the loan request and its eligibility for a PPP loan.
    • Records relating to the Application and documentation demonstrating borrower’s material compliance with PPP requirements.

More to Come

As we have noted in prior articles, the facts, laws, and regulations regarding COVID-19 are developing rapidly and frequently changing, including guidance involving the PPP. Since the date of publication, there may be new or additional information not referenced in this update. JW will continue to provide up-to-date insights and virtual events regarding COVID-19 concerns.  Our most recent insights, as well as information about recorded and upcoming virtual events, are available at the JW Coronavirus microsite.

This update is not intended to provide legal advice, and no legal or business decision should be based on its contents. Please consult with your legal counsel for guidance.

JW Contacts

For specific assistance or more information concerning these loan programs, please contact John Wittenberg or Lindsey Berwick.


Meet Lindsey

Lindsey B. Berwick has multifaceted experience handling commercial financing and transactional matters in both private practice and at one of the nation’s 60 largest financial institutions. Lindsey’s practice focuses on complex business transactions involving real estate, finance, commercial agreements and general corporate law. Clients look to Lindsey to evaluate and advise on commercial loan structures and documentation, leveraging her extensive background in the banking and finance industry to identify the correct financing vehicle for each transaction with a focus on achieving the clients’ business goals.

Meet John

John D. Wittenberg represents and counsels a wide variety of clients in all aspects of commercial real estate (office, retail, and industrial). John’s practice includes the representation of banks and other financial institutions, as well as equity sponsors and borrowers, on complex business transactions and a broad range of transactional matters. Over the course of his career, John has represented clients on acquisitions and dispositions of commercial real estate, commercial leases (office, retail and industrial), sale-leasebacks, and commercial development transactions.

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Please note: This article and any resources presented on the Jackson Walker Coronavirus microsite do not constitute legal or medical advice.