PPP Borrower Application-Financial Advisor-CARES Act-Skokie IL-Chicago IL Last week the SBA published the Paycheck Protection Program (PPP) Loan Forgiveness Application. Although the application is not overly technical, there is flexibility in borrower interpretation of information required which can affect the outcome of the loan amount.

(UPDATE): The House approved legislation on May 28th, making it easier for recipients of the PPP to qualify. There is legislation pending that will potentially modify the program further. We will provide additional updates as they become available.

It’s important to talk to a CPA or qualified financial advisor first to ensure the application is filled out accurately. Once the application is submitted, changes cannot be made.

Below are key highlights as interpreted by the Illinois CPA society:

Paid/Incurred Issue

The paid/incurred issue has been resolved very much in a borrower’s favor.  Costs that will work for forgiveness include:

Eligible costs paid during the 56-day period regardless of when they were incurred and

Eligible costs incurred during the 56-day period so long as they are paid by a standard payment date define for each cost type.

For wages incurred before day 56 but not yet paid, they just need to be paid no later than the next regular payroll date. For other costs (like utilities) it just needs to be paid on or before the next billing date (I think the SBA date means the due date shown on the bill). So you should get more than 8 weeks into 8 weeks.

Owner Bonus

Bonuses to owner-employees have been an option to many in order to fill shortfalls on eligible expenses used to apply for loan forgiveness.  However, buried in the representations, the representative must initial on the second page of the application form itself.  It says that the amounts being submitted as payroll costs for forgiveness related to owner-employees, self-employed individuals and partners “does not exceed eight weeks’ worth of 2019 compensation for any owner-employee or self-employed individual/general partner, capped at $15,385 per individual.”

This would appear to be in place to stop owners from soaking up any excess loan via a bonus, at least assuming less than $100,000 in 2019 compensation.  There is no such discussion of limiting non-owner-employees.

Alternative Payroll Covered Period

The creation of a new Alternative Payroll Covered Period that allows borrowers to align the 56-day period with their own payroll period is in the instructions for payroll costs under the program.  Note that other expenses stay on the standard 56-day period starting on the date of loan funding.  If you pay payroll at least bi-weekly, you can start that 56-day period on the beginning date of the first payroll period after receiving the funds.  Obviously, for bi-weekly payroll that eliminates the issue of having to pick up a partial payroll at the end.

Alternative Payroll Covered Period

The SBA is looking at the average salary/pay rate for the first quarter for each employee actually on the payroll in the 8 week period.  This provides an interesting concession on employees who quit or were terminated prior to the Pandemic but worked for some of the first quarter.  Owner-employees aren’t part of the calculation for this or FTEs either.

FTE Calculation

We finally got an FTE calculation–and it’s 40 hours (so if you’ve been doing an ACA style calculation, need to reset).  No employee can count as more than one FTE (like we see in the ACA).  There is a simplified method where every employee that works 40 hours normally is 1.0 FTEs and those that normally work less are 0.5 FTEs.  The more complicated version requires documenting the average hours per week worked divided by 40 hrs. and rounded to the nearest .1.

Additionally, employees that turn down your offer of reemployment likely will not impact the FTE calculation.  This assumes you made the proper offer and documented the refusal.  Also, interesting–the documentation of the offer and refusal do not get sent in with the request for forgiveness.

It is up to the lender and the SBA to evaluate each loan for forgiveness. At The Hechtman Group Ltd, our team of qualified CPAs can provide PPP loan forgiveness guidance. Contact us today to schedule a consultation.

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