Last Wednesday, the Small Business Administration and the U.S. Treasury released an updated version of the Paycheck Protection Act Forgiveness Application and, with it, a new “EZ” Application in response to calls for a less burdensome process for smaller borrowers.
The new EZ Form, which is only three pages long, is available only to self-employed borrowers with no employees and to businesses that did not reduce employee numbers between January 1, 2020 and the end of the Covered Period or reduce wages by more than 25% for any employee during that period. Instructions for the form include the circumstances that qualify a borrower for use of the EZ Form.
The EZ Form FTE-reduction formula differs slightly from the formula used in the longer form. To qualify for use of the EZ Form, a borrower must not have reduced FTE numbers between January 1, 2020 and the end of the Covered Period. This differs from the forgiveness reduction calculation that allows the borrower to choose between two reference periods (either February 15-June 30, 2019 or January 1, 2020-Feb 29, 2020) to determine whether employee numbers were reduced. If any FTE reductions were made since January 1, 2020, even if the 2019 comparison period would reach a different result, the borrower must use the longer forgiveness application form. The safe harbors introduced by the PPP Flexibility Act still apply, however.
The Agencies also updated the long form, which new version can be found here: PPP Loan Forgiveness Application and its instructions here: PPP Loan Forgiveness Application Instructions. The long form has also been shortened, but that is partly due to the Instructions having been stripped from the application and made accessible as a separate document. The Loan Forgiveness Application form was updated to incorporate the amendments of the Paycheck Protection Program Flexibility Act.
The revamped instructions have not changed the description of the amended Covered Period, leading us to confirm that the choice is binary: either the borrower has a 24-week Covered Period or an 8-week Covered Period upon the borrower’s election if they took the loan prior to June 5, 2020. Loans disbursed after June 5, 2020 have a 24-week Covered Period or a Covered Period ending on December 31, 2020, if that comes first. While the PPP Flexibility Act arguably allows for a Covered Period to end at any point between 8 and 24 weeks and discussions with at least one Congressional delegate confirms that such flexibility was intended, the forgiveness documents demonstrate that the SBA is not implementing it in this way. You must choose. Note that no Covered Period extends beyond December 31, 2020.
Also important is the treatment of “paid and incurred” payroll costs calculation. It appears that payroll paid the day after disbursement of a PPP loan for employee work that preceding the loan (in that first pay period) and payroll costs earned by your employees but paid after the end of the Covered Period (provided it is paid in the immediately following pay period) may both be included in your payroll costs calculation. This should apply equally to non-payroll costs. Mortgage interest and rent and utilities costs qualify as expenses during the Covered Period if they are paid or incurred during the Covered Period as long as the costs are, indeed, paid by the very next due date after the Period. Be sure to discuss this with your accountant or counsel as you prepare your forgiveness application. And be certain to submit your application no sooner than ten (10) months after the end of your Covered Period or it may be disallowed entirely.
We recommend reading the Loan Forgiveness Application Instructions carefully now as they comprehensively explain not only the calculations you and your lender will need to make and the data you will need to make them, but they also lay out the documentation you will need to create and retain to support the application. Forewarned is forearmed, as they say.
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FOR MORE INFORMATION
For more information about the Paycheck Protection Program or SBA emergency economic injury disaster loans, please contact your attorney at Gravel & Shea PC or any of the following attorneys at the firm: Chip Mason (cmason@gravelshea.com), Cassandra LaRae-Perez (claraeperez@gravelshea.com), Oliver Goodenough (ogoodenough@gravelshea.com), Keith Roberts (kroberts@gravelshea.com), Pauline Law (plaw@gravelshea.com), or Catherine Burke (cburke@gravelshea.com).
