The Paycheck Protection Program (PPP) has played a critical role in keeping businesses afloat during the Stay at Home order prompted by COVID-19. More than 57,000 Louisiana businesses had taken a PPP loan as of May 8, joining the millions of business owners across the country hoping the loan’s terms will be favorable in the long run.
The key provision of the PPP upon which these businesses are relying concerns the loan’s forgiveness, and on May 15, the SBA released the application for PPP forgiveness and instructions for borrowers. The portion of PPP loans spent on payroll and other eligible expenses during the eight-week period immediately following the borrower’s draw on the loan are 100% forgivable.
The application must be submitted to the lender from which the borrower took the loan, and must include the following two components: 1) a PPP Loan Forgiveness Calculation Form, and 2) a PPP Schedule A.
To assist in completing the second component, SBA has released a Schedule A Worksheet and instructions, available here. To collect information to allow for evaluation of the PPP, the SBA has also released a Borrower Demographic Information Form.
Because the PPP requires that wages and headcount return to or remain at pre-COVID levels, the Schedule A Worksheet instructions outline how to calculate both average fulltime employees and wage reductions. Importantly, the instructions also provide details on an exception to the fulltime employee reduction rule and the corresponding safe harbor from loan forgiveness reductions based on fulltime employee levels. The fulltime employee reduction exemption will kick in if the borrower:
- made a good-faith, written offer to rehire an employee and such offer was rejected;
- fired an employee during the eight-week period for cause;
- had an employee voluntarily resign; or
- had an employee voluntarily request and receive a reduction in hours.
The fulltime employee safe harbor will exempt borrowers from the loan forgiveness reduction for employees described above if the borrower both:
- reduced its fulltime employee levels in the period between February 15, 2020 and April 26, 2020 and,
- restored its fulltime employee levels by no later than June 30, 2020 to its fulltime employee levels in the borrower’s pay period that included February 15, 2020.
The fulltime employee reduction exemption and safe harbor demonstrate that while there remains a requirement to rehire to pre-COVID levels by June 30, 2020 in order to receive full forgiveness for payroll costs, full forgiveness will be granted even when headcount does not reach pre-COVID levels during the eight-week covered period, if the reason for the reduced headcount falls into the four outlined exceptions.
This guidance is incredibly valuable, particularly to those first PPP borrowers for whom the end of the eight-week covered period is quickly approaching. As with all other parts of the PPP, borrowers and lenders are learning as they go, and it remains to be seen how smoothly – or not – the loan forgiveness process will turn out.
Liz Smith
As BRAC’s senior vice president of economic competitiveness, Liz leads the organization’s public policy advocacy, strategy, research, and reform activities aimed at advancing the quality of life and economic competitiveness of the Baton Rouge Region.