Treasury Releases PPP Loan Forgiveness Application
Client Alerts | May 18, 2020 | Securities and Corporate Finance | Hedge Funds | Private Equity Funds
Last Friday night, the Department of Treasury (“Treasury”) released the loan forgiveness application (“Application”) for the paycheck protection program (“PPP”). The Application is consistent with the CARES Act provisions and the Treasury’s guidance that Kleinberg Kaplan previously summarized in a client alert, available here. The form of Application can be found here. Applications must be completed by the borrower and submitted to the lender on or before October 31, 2020.
Some key highlights of the Application are as follows:
- Loan amounts are forgivable only for specified forgivable expenses paid during the “Covered Period,” which is the eight-week period starting on the PPP loan disbursement date.1
- As discussed in our previous client alert(s), payroll costs, business mortgage interest payments, business rent or lease payments, and business utility payments are all forgivable expenses, although the Treasury’s guidance expressly requires that payroll costs constitute at least 75% of the total forgiveness amount.
- The forgiveness amount is reduced by the borrower’s total salary and hourly wage reduction and then multiplied by the “FTE Reduction Quotient,” which reduces the forgiveness amount proportionally to full-time employee reduction. The Treasury provides a schedule to help calculate these numbers and provides guidance on the safe harbor in which borrowers can avoid these reductions upon rehiring employees or restoring their hours and salary by June 30, 2020. The Treasury has also provided some much-awaited guidance with regard to the methodology for calculating the number of full-time employees.
1 In certain parts of the Application, borrowers may apply an “Alternative Payroll Covered Period” in which the Covered Period begins on the first day of the first pay period following the PPP loan disbursement date. However, if a borrower elects to use the Alternative Payroll Covered Period, it can and must be used only where the application specifies.