Law Bulletin | May 19, 2020

PPP Loan Forgiveness Application Issued

On May 15, 2020, the Small Business Administration and Treasury Department released the Loan Forgiveness Application (“Application”) borrowers must complete in order to have their Paycheck Protection Program (“PPP”) loans forgiven.  The Application includes information about the costs that are eligible for forgiveness and instructions for calculating those costs, using the following forms:

  • PPP Loan Forgiveness Calculation Form (“Calculation Form”) and instruction sheet;
  • PPP Schedule A (“Schedule A”) and instruction sheet;
  • PPP Schedule A Worksheet (“Worksheet”) and instruction sheet;
  • Documents Each Borrower Must Submit with its PPP Loan Forgiveness Application; and
  • Optional PPP Borrower Demographic Information Form.

The Worksheet is used to collect the information needed to perform the calculations in Schedule A, and the information on Schedule A is used to complete the Calculation Form.  Accordingly, setting aside the optional demographic information sheet, the Application is best prepared in reverse.

The Application includes a number of new features, and provides clarification of some PPP provisions.

New Features

Alternative Covered Period
The covered period dictates the time frame for expenses that qualify for forgiveness.  The CARES Act and related regulations provided only one covered period, that being the eight week period beginning on the date of the first loan disbursement (the “Covered Period”).  The Application gives borrowers with a weekly or biweekly payroll schedule the option to calculate eligible payroll costs using an alternate eight week period that begins on the first day of the borrower’s first pay period following loan disbursement (the “Alternative Covered Period”).  This option applies only to payroll costs; eligible nonpayroll costs must be paid or incurred during the Covered Period.

Non-Cash Compensation for Owners Excluded
Non-cash compensation included in the CARES Act’s definition of payroll costs includes payments for health insurance, retirement benefits and employer-paid state and local taxes assessed on employee compensation.  The Application makes a distinction between the treatment of non-cash compensation to employees that is paid for by an employer, and non-cash compensation for business owners who operate as S-Corporations, partnerships, or self-employed individuals.  Pursuant to Schedule A, such non-cash compensation for employees is included in the calculation of an employer’s payroll costs.  However, payroll costs for business owners consists only of the “total amount paid to owner-employees/self-employed individual/general partners.”

Limitation on Owner’s Compensation
The amount paid to owner-employees, self-employed individuals and general partners is capped at the lower of $15,385 (the eight week equivalent of $100,000 per year), or the eight week equivalent of their 2019 compensation.


Eligible Nonpayroll Expenses
The Application confirms that eligible payments for rent include business rent or lease payments for personal property, as well as real property.  The Application also provides more detail regarding eligible utility payments, which are identified as “business payments for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020.”

Forgiveness of Expenses Paid or Incurred During the Covered Period
Since the inception of the PPP, it has been unclear if forgiveness is available only for payroll and eligible nonpayroll expenses that were paid by the borrower during the eight week forgiveness period, or if forgiveness is also available for costs that were incurred during the eight week period, but not paid during that time.  The Application allows borrowers to request forgiveness for both.  However, expenses that were incurred but not paid during the eight week period, will be forgiven only if those expenses are paid by the next regular payroll or billing date.

Forgiveness Reductions
The Application provides instructions for determining if the loan forgiveness amount will be reduced based on a reduction in the size of the borrower’s workforce as measured by the borrower’s “full-time equivalency” (“FTE”); if the borrower qualifies for the FTE Reduction Safe Harbor; and if the loan forgiveness amount will be reduced based on reductions in employees’ salaries or hourly wages.

Calculation of FTE
The Application clarifies that in calculating the borrower’s FTE, a “full time” employee is one who is paid for a 40 hour week.  The Application also explains that a borrower’s FTE is based on the FTEs of its individual employees, and an employee’s FTE is calculated by (1) determining the average number of hours paid per week to that employee; (2) dividing that number by 40; and then (3) rounding to the nearest tenth, with the maximum FTE capped at 1.0.  Borrowers may opt for a more simplified calculation under which all employees who are paid 40 hours or more per week have an FTE of 1.0, and employees who are paid less than 40 hours per week have an FTE of 0.5.  The method chosen must be used consistently throughout the application.

In a press release announcing the publication of the application, the SBA noted that it will soon issue regulations and additional guidance for borrowers on completing the forgiveness form, as well as guidance for lenders regarding their responsibilities with respect to forgiveness.

If you need additional information about PPP Loan Forgiveness, contact our attorneys through our website at or call (707) 524-1900.  We are here to help.

Terry Sterling

Spaulding McCullough & Tansil LLP