CARES Act: SBA Issues FAQs on Paycheck Protection Program (PPP) Loan Forgiveness

Practical Law Legal Update w-026-8832 (Approx. 5 pages)

CARES Act: SBA Issues FAQs on Paycheck Protection Program (PPP) Loan Forgiveness

by Practical Law Finance

Published on 05 Aug 2020 • USA (National/Federal)

The Small Business Administration (SBA) issued Frequently Asked Questions (FAQs) to provide guidance for borrowers and lenders on forgiveness of Paycheck Protection Program (PPP) loans. The FAQs are in addition to the procedural notice on the PPP loan forgiveness process issued by the SBA on July 23, 2020.

On March 27, 2020, the US government passed the CARES Act in response to the COVID-19 crisis. Under the CARES Act, the Small Business Administration (SBA) is offering loans under the Paycheck Protection Program (PPP). On April 2, 2020, the SBA issued an interim final rule (Initial Rule) outlining the key provisions for implementing the PPP. Subsequently, the SBA has issued additional interim final rules (see Practice Note, Road Map to the Coronavirus Aid, Relief, and Economic Security Act (CARES Act): Paycheck Protection Program (PPP)).

On July 23, 2020, the SBA issued an updated procedural notice that informs PPP lenders of the processes for loan forgiveness (see Legal Update, CARES Act: SBA Issues Updated Procedural Notice for PPP Lender Submission of PPP Loan Forgiveness Decisions and SBA Loan Forgiveness Reviews).

On August 4, 2020, the SBA issued Frequently Asked Questions (FAQs) to provide further guidance for borrowers and lenders on forgiveness of PPP loans.

FAQ Coverage

The FAQs address the following questions in several categories.

General Loan Forgiveness FAQs

The correct loan forgiveness application to be used by sole proprietors, independent contractors, and self-employed individuals with no employees.
The use of scanned copies of documents, E-signatures, or Econsents for loan forgiveness applications and loan forgiveness documentation.
Whether a borrower has to make payments on its PPP loan once it submits a timely loan forgiveness application.

Loan Forgiveness Payroll Costs FAQs

Whether payroll costs incurred during the Covered Period or the Alternative Payroll Covered Period but paid after the Covered Period or the Alternative Payroll Covered Period are eligible for loan forgiveness.
Whether payroll costs incurred before the Covered Period but paid during the Covered Period are eligible for loan forgiveness.
Whether borrowers are required to calculate payroll costs for partial pay periods.
When calculating cash compensation, whether to use the gross amount before deductions for taxes, employee benefits payments, and similar payments, or the net amount paid to the employee.
Whether lost tips, lost commissions, bonuses, or other forms of incentive pay qualify for loan forgiveness.
What group health care costs and contributions for retirement benefits are considered payroll costs that are eligible for loan forgiveness.
How to determine the amount of owner compensation that is eligible for loan forgiveness.

Loan Forgiveness Nonpayroll Costs FAQs

Whether nonpayroll costs incurred prior to the Covered Period but paid during the Covered Period are eligible for loan forgiveness.
Whether nonpayroll costs incurred during the Covered Period but paid after the Covered Period are eligible for loan forgiveness.
If a borrower elects to use the Alternative Payroll Covered Period for payroll costs, whether that period also applies to nonpayroll costs.
If interest on unsecured credit is eligible for loan forgiveness.
If payments made on recently renewed leases or interest payments on refinanced mortgage loans are eligible for loan forgiveness if the original lease or mortgage existed prior to February 15, 2020.
What expenses are included as a covered utility payment under "payment for a service for the distribution of . . . transportation” under the CARES Act.
Whether electricity supply charges that are charged separately from electricity distribution charges are eligible for loan forgiveness.

Loan Forgiveness Reductions FAQs

Will the forgiveness amount be reduced due to a reduction in FTE employees during the Covered Period if a laid off employee declined the borrower's offer to re-hire them.
When seasonal employers elect to use a 12-week period between May 1, 2019, and September 15, 2019, to calculate the maximum PPP loan amount, the period in 2019 that should be used as the reference period to calculate any reductions in the loan forgiveness amount.
When calculating the FTE Reduction Exceptions in Table 1 of the PPP Schedule A Worksheet on the Loan Forgiveness Application, whether borrowers include employees who made more than $100,000 in 2019.
How to calculate the reduction in the loan forgiveness amount due to reductions in employee salary or hourly wage.
Whether all forms of compensation (or only salaries and wages) are included in calculating the loan forgiveness reduction required for salary/hourly wage reductions in excess of 25% for certain employees.

More Information

For summaries of the SBA PPP, see:

For additional guidance from the Treasury Department, see:

CARES Act: SBA Issues FAQs on Paycheck Protection Program (PPP) Loan Forgiveness | Practical Law