New SBA Guidance

PPP Loan Forgiveness Update: SBA Releases Loan Forgiveness Application Form

On May 15, 2020, the Small Business Administration (SBA), in consultation with the Treasury Department, released the Paycheck Protection Program (PPP) Loan Forgiveness Application Form.  A complete copy of the application form can be found here.

The release of the application form answers a number of questions impacting the PPP borrowing community.  While the government has indicated that more guidance related to forgiveness is forthcoming, the highlights of the clarified items include:

  • Alternative Payroll Covered Period: Borrowers may elect to begin the 8-week covered period on the date of their first pay period following the date the PPP proceeds were received from the lender.
  • Rent or Lease Payments: Payments for both real and personal property are eligible for forgiveness.
  • $100,000 Payroll Cost Cap: $100,000 cap applies to cash compensation (i.e., $15,385 for the 8-week period). Non-cash compensation (i.e., state and local taxes assessed on employee compensation, retirement benefits and healthcare benefits) are not subject to this cap.
  • Owner Payroll Cost Limitation: Compensation for owners, partners, etc. is limited to 2019 amounts (capped at $100,000).
  • Paid or Incurred: Clarifies the paid or incurred standard, confirming that eligible payroll costs incurred during the 8-week covered period but paid on or before the next payroll date are eligible for forgiveness. Likewise, non-payroll costs incurred during the 8-week covered period but paid on or before the next billing date are forgiveness eligible as well.  This is welcomed relief for borrowers who will no longer need to consider special payrolls and/or other payments to satisfy timing requirements to coincide with the end of this period.
  • Full-Time Equivalent (FTE) Employees: FTEs are measured at a rate of 40 hours per week. The instructions to the application form provide a formula to compute the average FTEs based upon average paid hours.  A simplified method is available as well.
  • June 30, 2020: Confirms that June 30, 2020 is the date that borrowers will use to measure if an exception to the headcount and/or salary reduction forgiveness limitation is available, irrespective of when the 8-week period begins or ends.
  • 25% Salary/Hourly Wage Reduction Formula: Applies an average salary comparison for purposes of determining if a greater than 25% salary reduction for employees earning annual compensation less than $100,000 has occurred. Prior to the release of this application form, an irregularity existed because borrowers were measuring 8-weeks of compensation vs. a full quarter (i.e., 12-13 weeks), thus implying that a 25% reduction was near-mathematically guaranteed.
  • FTE Reduction Safe Harbor: Verifies that the FTE Safe Harbor has precedence over the FTE reduction analysis detailed in the CARES Act:
    • The CARES Act requires a comparison of FTEs during the 8-week covered period to borrower-selected periods between February 15, 2019 – June 30, 2019 or January 1, 2020 – February 29, 2020. Seasonal employers are offered additional comparison periods.
    • The FTE Safe Harbor eliminates the negative forgiveness implications for situations in which FTEs that were terminated between February 15, 2020 – April 26, 2020 are rehired on or before June 30, 2020.
  • FTE Reduction Exceptions: SBA FAQ #40 eliminated negative borrower forgiveness implications for situations where a previously laid-off employee declined a written re-hire opportunity. The PPP loan application form provides additional scenarios for borrowers to avoid forgiveness limitations when employees were (a) fired for cause, (b) voluntarily resigned, or (c) voluntarily requested and received a reduction of their hours.
  • Forgiveness Formula: Confirms that Non-Payroll Cost forgiveness is limited to 25% of the total amount forgiven.
  • EIDL Advance: If applicable, the SBA will automatically deduct EIDL Advance Amounts (up to $10,000) from the forgiveness amount requested.


In addition to these clarifications, borrower documentation submission requirements are detailed in the application, including:

  • Payroll: Documentation of eligible cash and non-cash compensation amounts must be provided, including bank statements, third-party payroll service provider reports and applicable payroll tax filings. Support for employer contributions to health insurance and retirement plans must be submitted as well.
  • Non-Payroll: Documentation verifying pre-February 15, 2020 lease and/or utility obligations is required. Amortization schedules, bank statements, cancelled checks, receipts, lease agreements and/or utility invoices are examples of the documentation that will need to be provided to support eligible mortgage interest, rent and utility payments.
  • FTE Headcount: Verification of average number of FTEs as follows:
    • February 15, 2019 – June 30, 2019;
    • January 1, 2020 – February 29, 2020
  • FTE Headcount (Seasonal Employers): Verification of the average number of FTEs as follows:
    • February 15, 2019 – June 30, 2019;
    • January 1, 2020 – February 29, 2020; or
    • Any consecutive 12-week period between May 1, 2019 – September 15, 2019


Borrowers must also maintain the following in their records [1]:

  1. Employee by employee documentation for the amounts included in payroll costs both above and below the annual $100,000 limit.
  2. Documentation regarding employee separation events, including job offers and refusals, firings for cause, voluntary resignations and written requests by any employee for work schedule reductions.
  3. Documentation supporting the FTE Reduction Safe Harbor.


Borrowers must maintain this documentation for 6 years after the date the loan is forgiven or repaid in full.  The SBA, as well as the Office of Inspector General, must be allowed access to these files upon request.  There is also an optional PPP Borrower Demographic Information Form, completion or non-completion of which will have no bearing on forgiveness.

Tune into our webinar on Thursday, May 21st at 10AM for additional information on this topic, as well as for a discussion surrounding open questions and items yet to be clarified.  View the invite and register here.

Sax will continue to update you as further details are made available.  Reach out to your Sax advisor or email [email protected] with questions.  For more and on-going information relative to your state and business, visit Sax’s COVID-19 Resource Center.

[1] These documents are not required to be submitted with the PPP Loan Forgiveness Application.

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