On June 16, 2020, the U.S. Department of Treasury (Treasury) and U.S. Small Business Administration (SBA) published an updated Loan Forgiveness Application for borrowers to complete in order to apply for loan forgiveness under the Paycheck Protection Program (PPP)[1] to conform with the changes to the PPP pursuant to the Paycheck Protection Program Flexibility Act (PPPFA).  The Loan Forgiveness Application is composed of a loan forgiveness calculation form, a related Schedule A worksheet, a representations and certifications form, and an optional PPP borrower demographic information form.  The application is further supplemented by a Loan Forgiveness Application Instructions for Borrowers sheet.

For a summary of the major changes to the PPP pursuant to the PPPFA, please visit our article on the subject matter.  Highlights of what we believe to be material new guidance or clarification of existing guidance regarding PPP loan forgiveness in the updated Loan Forgiveness Application are as follows:

The “Covered Period” and Submission of the Loan Forgiveness Application 

 There is no obligation on a PPP borrower to submit a Loan Forgiveness Application.  A PPP borrower’s failure to submit a Loan Forgiveness Application, however, is certain to result in no portion of its PPP loan being forgiven. Although there is no express deadline by which a PPP borrower must submit its Loan Forgiveness Application, a PPP lender is not prohibited from providing such a deadline in its PPP Note or other PPP-related loan documentation.  In addition, the PPPFA provides that a PPP borrower that fails to apply for forgiveness within 10 months after the last day of the 24-week forgiveness period must begin making principal and interest payments on the date that is 10 months after the ending date of the forgiveness period.  Therefore, failure to submit the Loan Forgiveness Application within such 10-month period is expected to result in a PPP borrower being thereafter required to make monthly installment payments on the full amount of its PPP loan.

Also, a PPP borrower is not prohibited from submitting a Loan Forgiveness Application before any specified date or before the lapse of any period of time since the funding of its PPP loan.  This means that a PPP borrower may, subject to any conditions imposed by its PPP lender, submit its Loan Forgiveness Application before the end of the “Covered Period” applicable to its PPP loan, which is defined in the Loan Forgiveness Application to mean either the (i) 24-week forgiveness period beginning on the day the PPP loan is disbursed (but in no event ending later than December 31, 2020) or (ii) if the PPP borrower received its loan before June 5, 2020 and elects to choose a shorter period, the 8-week forgiveness period[2] beginning on the day the PPP loan is disbursed.[3]

We note that the Loan Forgiveness Application requires the PPP borrower to provide information for, or to certify as to events or circumstances occurring during, the “Covered Period”. Because the Loan Forgiveness Application may be submitted at any time, including before the end of the applicable Covered Period, we believe it is reasonable to interpret the meaning of “Covered Period” for this purpose as a period beginning on the on the day the PPP loan is disbursed and ending on the termination dates described above, or, if earlier,the date on which the PPP borrower submits the Loan Forgiveness Application.

Safe Harbors for FTE and Salary/Wage Loan Forgiveness Reduction

The Loan Forgiveness Application suggests that, in order for a PPP borrower to qualify for either of the safe harbors that would result in eliminating a reduction to loan forgiveness, the PPP borrower need only eliminate the applicable reduction, whether as to employment or salary/ wages, for a single day, which would ostensibly be the date of submission of the Loan Forgiveness Application.  Furthermore, neither the CARES Act, nor the Forgiveness Application, nor any rules or guidance issued to date indicates there is any obligation for a PPP borrower to maintain either its FTE count or salary/wage levels after the submission of its Forgiveness Application in order to receive the full amount of loan forgiveness for which the PPP borrower is eligible based on its FTE count and salary/wage levels on the date of submission of its Forgiveness Application.[4]

*Things are changing quickly and the measures and interpretations described here may change. Our analysis is necessarily limited by the time sensitivities of the current crisis as well as the absence of precedent for some of what is contained here. This analysis represents our best interpretation and recommendations based on where things currently stand.*

FOOTNOTES

[1] As enacted under the Coronavirus Aid, Relief, and Economic Security Act (as amended, supplemented or otherwise modified from time to time, including, without limitation, by the Paycheck Protection Program and Health Care Enhancement Act, Paycheck Protection Program Flexibility Act, applicable federal regulations and interpretive guidance issued by the SBA and Treasury, the CARES Act).

[2] We maintain our view, which we initially provided in our prior article, that it is not clear if a PPP borrower receives any advantage or benefit by electing an 8-week forgiveness period.

[3] We note that the Loan Forgiveness Application requires the PPP borrower to provide information for, or to certify as to events or circumstances occurring during, the “Covered Period”.  Because the Loan Forgiveness Application may be submitted at any time, including before the end of the applicable Covered Period, we believe it is reasonable to interpret the meaning of “Covered Period” for this purpose as a period beginning on the on the day the PPP loan is disbursed and ending on the termination dates described above, or, if earlier, the date on which the PPP borrower submits the Loan Forgiveness Application.

[4] For the FTE and salary/hourly wage reduction safe harbor tests, a PPP borrower is only required to input its total FTE count or average annual salary or hourly wages, as applicable, as of the earlier of “the earlier of December 31, 2020 and the date th[e] application is submitted.”