PPP Loan Forgiveness
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PPP Forgiveness Guidance Arrives

On April 3rd, Paycheck Protection Program (PPP) loans opened to applicants. One of the most attractive features of PPP loans is the ability to have some or all of the loan forgiven, mostly based on activity occurring within an eight-week period starting at loan origination.

On May 15th, the SBA issued the long-awaited PPP Loan Forgiveness Application with instructions and guidance in the form of what is known as a "forgiveness application". While it doesn’t answer every question, it does address some big concerns. Most companies should be able to include a full eight weeks’ worth of payroll and applicable nonpayroll costs.


Flexibility to include eight weeks of payroll: You can include payroll costs for the last pay period of the covered period, if those costs are paid on or before the next regular payroll date.

Flexibility to include eight weeks of applicable nonpayroll costs: You can include nonpayroll costs that you either paid during the covered period or incurred during the covered period and paid on or before the next regular billing date.

Flexibility to align with normal pay cycles: You can shift the eight weeks for payroll costs to line up with regular pay cycles. This allows for an optional alternative payroll covered period for weekly and biweekly borrowers, which makes tracking easier.
Important - this doesn’t shift the eight-week covered period for nonpayroll costs.

Simplified FTE calculation method: You can elect a simplified FTE calculation method. Under the simplified method, employees working at least 40 hours per week count as 1.0 and employees working fewer than 40 hours per week count as 0.5.

FTEs based on 40-hour workweek: The SBA application finalized a 40-hour workweek, which is typically how employers generally define FTEs. This may benefit some borrowers and hurt others because it impacts both the numerator and denominator of a ratio in the forgiveness application.


Certain payroll costs still excluded: The new loan forgiveness guidance permits borrowers to request forgiveness of payroll costs incurred in the covered period but paid after, but only if those costs are “paid on or before the next regular payroll date.” Many borrowers are incurring payroll costs now that won’t be paid by the deadline for inclusion in forgiveness. An example could be retirement contributions made annually.

Less flexibility for rehires: Although a reduction in FTE employees during the covered period will generally cause a corresponding reduction in the amount of PPP loan forgiveness that a borrower may receive, Section 1106 of the CARES Act allows an exemption for borrowers if employees terminated between February 15th and April 26th are rehired by June 30th. The application is clear that borrowers must rehire enough FTEs by June 30th to match their February 15th level, in order to qualify for the exemption under Section 1106.

Treatment of interest on certain debt obligations is still unclear: Section 1106 of the CARES Act provides that interest on “covered mortgage obligations” (defined to include mortgages on “real or personal property”) can be included in the forgiveness application, but it is unclear whether borrowers can also include interest on other debt obligations. Accordingly, it would seem that Section 1106 only applies to mortgages on real property.

For more information regarding these changes, or if you have any questions or need assistance, please contact Michael Ceschini, Managing Member, Ceschini CPAs, at (631) 474-9400.