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PPP Loan Forgiveness Application

By Christopher W. Peer, Esq. and Benjamin M. Cooke, Esq.

Forgiveness has been one of the primary topics of discussion surrounding the Paycheck Protection Program ("PPP") for weeks (especially for small businesses receiving less than $2 million in PPP funds).  Finally, some official guidance is out on how employers will report their use of PPP funds and establish their right to forgiveness of the PPP loans.  On Friday, May 15, 2020, the Small Business Administration ("SBA") and the Treasury Department released the PPP loan forgiveness application and related instructions (the "Application").  You can connect to the Application here.

The Application is useful.  It answers some of the pressing issues surrounding PPP loan forgiveness, such as how average full time equivalent employees ("FTEs") and how a borrower's loan forgiveness amount shall be calculated.  Some questions, however, remain unanswered — questions as general as when can you apply for loan forgiveness or as specific as what constitutes transportation costs within the definition of payroll costs.  The SBA will be releasing further guidance as updates to the Interim Final Rule under the CARES Act.  In the meantime, here are some key takeaways from the Application:

  • Alternative Payroll Covered Period

One of the more favorable developments arising from the release of the Application is the addition of an optional "Alternative Payroll Covered Period," applicable to eligible payroll costs only.  This Alternative Payroll Covered Period allows some flexibility to borrowers, allowing them to calculate eligible payroll costs using the eight-week (56-day) period on beginning on the first day of the first payroll period following the date on which the employer received PPP loan funds.  For all other covered expenses, employers continue to use the eight-week period beginning on the date the employer first received PPP loan funds.  If your company is not a bi-weekly payroll payor, differences could swing materially.  We recommend modelling the financial impact with your advisors to maximize effect.

  • Average FTEs

One item that was confirmed by the Application is that FTEs will be calculated based on a 40-hour workweek.  Employers may choose one of two means of calculating FTEs.  1) For each employee, divide that employee's average number of hours worked by 40 and round to the nearest tenth (maximum value of 1.0); OR 2) assign 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work less than 40 hours per week.  Which method is best will be employer specific and we recommend exploring both options in your analysis to avoid reduction in forgiveness.

  • Employee Terminations

Recent additions to the SBA FAQs on the PPP made it clear that an employee who did not elect to return to work would not count against the borrower in its calculation of FTEs.  The Application expands on that idea somewhat by including a provision that certain terminations will be excluded from the FTE calculation, such as if an employee was terminated for cause, voluntarily terminated, or voluntarily took a reduction of hours.

  • 75/25 Rule

There was some concern that if payroll costs did not constitute 75% of the PPP loan amount, none of the loan would be forgivable. The Application clarifies this rule, solely applying the 75% rule to the calculation of the maximum loan forgiveness amount.

  • Lease Payments

It has been clear that rent payable during the eight week covered period shall be included in the calculation of forgivable non-payroll costs.  The Application makes clear that lease payments for real or personal property should be included.  That means that payments under building leases, equipment leases, and even vehicle leases are included within the forgivable rent payment amount so long as the lease was in place before February 15, 2020.

  • Interest

Similar to the lease payments on real or personal property, any interest paid for "any business mortgage obligation" is also part of the forgivable non-payroll costs again so long as the obligation was in place prior to March 15, 2020.

  • Paid or Incurred

Furthermore, the Application explains that payroll expenses and non-payroll expenses may be calculated for the purposes of forgiveness as "paid" or "incurred" during the Covered Period.  That is, payroll expenses that are incurred when the work is performed and paid in the next payroll cycle after the conclusion of the Covered Period would be forgivable.  Similarly, non-payroll costs incurred prior to the conclusion of the next billing cycle would also be forgivable.  Again, consideration of whether one method is preferable for your organization should be discussed with your professionals.

  • Forgiveness Amount Calculation

Calculating the loan forgiveness amount is no simple task, however, the Application provides detailed instructions, including tables and worksheets to assist.  We recommend reviewing these forms with your accountant and counsel, before and after completion, but certainly before submitting to your lender.

Despite everything stated above, please keep in mind that the implementation of PPP has been an evolving process to say the least.  The initial Interim Final Rule contained provisions that were different from or inconsistent with the CARES Act, and now parts of the Application are inconsistent with the statutory language.  Our Firm is committed to updating clients when important information is released.  Please contact your WHP counsel with any questions you may have.


This article provides an overview and summary of the matters described therein.  It is not intended to be and should not be construed as legal advice on the particular subject.

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