The ability to have a Paycheck Protection Program (PPP) loan forgiven is perhaps the most important part of the program—turning a low-interest loan into a grant. For the basic requirements regarding loan forgiveness, please click here to view our alert on that topic. 

Despite the critical importance of forgiveness, the process for applying for forgiveness, and some of the details on how it is calculated, have been murky. The Small Business Administration (SBA) has now provided some clarity by releasing the PPP Loan Forgiveness Application. 

Here are some of the key takeaways from the application:

• Flexibility on Covered Payroll Period and Paid/Incurred Tests. Payroll costs that can be forgiven are those paid and incurred in the eight weeks beginning with the disbursement of the loan. The application provides for an alternative eight-week period that begins on the first day of the applicant’s first pay period following loan disbursement. Payroll costs incurred, but not paid, during the last payroll period during the eight-week period, are eligible to be forgiven as long as they are paid on or before the next regular payroll date. 
• Payroll Reduction. As a general matter, borrowers are required to maintain their headcount or the forgiveness amount is reduced. The SBA provided an exception for (1) employees for which the borrower made a good-faith written offer to rehire during the eight-week period that was rejected by the employee, and (2) employees who during the eight-week period were fired for cause, voluntarily resigned, or voluntarily requested a reduction in hours. 
• Loans Exceeding $2 million. If the borrower received $2 million or more, together with its affiliates, it will be required to check a box, thereby triggering the SBA review indicated in Question #46 in SBA’s Frequently Asked Questions.   
• 75/25 Split Remains. There had been some speculation that SBA would relax the requirement that 75% of the forgiveness amount be used for payroll costs, but there has been no change in that regard. 
• Necessity Determination. The requirement that a borrower certify as to the necessity of a PPP loan has created a fair deal of consternation, leading the SBA to provide safe harbors on the issue, as outlined in our safe harbors alert. The forgiveness application does not require a new certification as to need.
• Certifications Galore. Although “necessity” is not among them, the application does require various certifications regarding the accuracy of the information in the application and that the PPP loan proceeds were used solely for allowable purposes. As with the initial loan application, knowingly making a false certification can result in various levels of enforcement, including criminal enforcement. 

We expect that the U.S. Department of the Treasury will provide further guidance regarding loan forgiveness in the coming weeks. When that guidance is issued, we will send out an additional alert.