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New Borrower-Friendly PPP Loan Forgiveness Applications and Guidance

The U.S. Small Business Administration (SBA) released a revised Paycheck Protection Program (PPP) loan forgiveness application and instructions and also unveiled a new EZ application for forgiveness of certain PPP loans.

The new borrower-friendly applications and instructions reflect changes to the PPP made by the Paycheck Protection Flexibility Act (PPFA) which became law June 5. The applications and instructions are available below:

Also on June 17th, the SBA filed its 19th Interim Final Rule (IFR), providing guidance on how to calculate employee and owner compensation for loan forgiveness in the new 24-week covered period created by the PPFA.

Changes made by the Paycheck Protection Flexibility Act 

While many of the PPP loan forgiveness rules remain the same, Congress passed the Paycheck Protection Flexibility Act to make it easier for small businesses and other PPP borrowers to qualify for full loan forgiveness. Key changes include:

  • For loans made after June 5th, the loan maturity date is extended from two to five years.  The maturity date can also be extended for loans made before June 5th, if both the borrower and lender agree.
  • The covered period for the loan forgiveness was extended from eight weeks to 24 weeks. Borrowers with loans taken before June 5th can still choose the eight-week period, if desired.
  • PPFA reduced the amount that needs to be spent on payroll in order to obtain forgiveness from 75% to 60%.  The SBA and Treasury have clarified that even if a borrower does not reach 60% in payroll expenses, they can still obtain partial forgiveness.
  • The PPFA extends the date to replace full-time equivalent employees (FTEs) and restore salaries from June 30, 2020 until December 31, 2020.  It also provided relief for those businesses that have a loss of FTEs because of Covid-19 related restrictions that prevent the same level of business activity through the end of 2020.

The PPFA is great news for borrowers. The latest IFR released June 17th, now provides insight on how these changes will work including calculating  owner compensation, employee compensation and non-payroll costs.

Owner compensation 

Under the new rules, owner compensation is calculated as follows:  It’s either:

  • Eight weeks’ worth (8/52) of 2019 net profit (up to $15,385) for an eight-week covered period or 
  • 2.5 months’ worth (2.5/12) of 2019 net profit (up to $20,833) for a 24-week covered period.” 

This does exclude any qualified sick leave equivalent amount claimed under the Families First Coronavirus Response ACT (FFCRA). If you file a schedule C, the first option is the same as it has always been – 2019 Schedule C line 31/52 * 8.  The second option is 2019 Schedule C line 31/12 * 2.5.

Employee Compensation 

The 24-week extension also increased the amount eligible for forgiveness to business owners with employees. The payroll costs including salary, wages and tips is still capped at $100,000 of annualized pay. But now instead of $100,000/52 * 8 (a max of $15,385 per individual), borrowers receive up to $100,000/52 *24, making the new maximum forgiveness cap $46,154 per individual for 24 weeks.

Employee Benefits

Payroll costs also include covered benefits for employees (but not owners), including health care expenses, retirement contributions, and state taxes imposed on employee payroll paid by the employer (such as unemployment insurance premiums).  These costs may be included over and above the $100,000 annual cap.


  • Self-employed individuals, general partners, or owner-employees of an S-corporation may not include health care expenses.
  • Retirement contributions made on behalf of a self-employed individual or general partners are also not included in forgiveness because such payments are already included in their compensation.
  • Retirement costs for S-Corporation employee-owners are eligible for forgiveness (health care costs are not.)

Non-payroll expenses 

The loan forgiveness amounts for non-payroll expenses have also been extended to 24 weeks. Non-payroll expenses include:

  • covered mortgage obligations: payments of interest (not including any prepayment or payment of principal) on any business mortgage obligation on real or personal property incurred before February 15, 2020
  • covered rent obligations: business rent or lease payments pursuant to lease agreements for real or personal property in force before February 15, 2020
  • covered utility payments: business payments for a service for the distribution of electricity, gas, water, transportation

The “incurred or paid” rule  still applies. Expenses must actually be paid during the 24 week period except for the final period where expenses incurred but not yet paid will count as long as they are paid by the next regular billing cycle or payroll period.  This means that borrowers will likely be able to include some expenses that fall outside of the 24-week covered period.   Prepayments are not allowed.

New application details

The SBA also released two new applications: a revised full-loan application and a new EZ Version.

The EZ PPP Loan Forgiveness Application requires fewer calculations and less documentation than the full application. The EZ application can be used by borrowers that:

  • Are self-employed and have no employees;
  • Did not reduce the salaries or wages of their employees by more than 25% and did not reduce the number or hours of their employees; or
  • Experienced reductions in business activity as a result of health directives related to COVID-19 and did not reduce the salaries or wages of their employees by more than 25%.

Whether completing the EZ or full loan forgiveness application form, If the borrower received a loan worth more than $2 million, it will be automatically audited by the government, part of an effort to prevent large, public companies from accessing the fund.

Also of note is that Borrowers don’t have to wait until Dec. 31 to apply for forgiveness to use the safe harbors.  Instead, safe harbors for excluding salary and hourly wage reductions and reductions in the number of employees (full-time equivalents) from loan forgiveness reductions can be applied as of the date the loan forgiveness application is submitted.

You still have time to apply for a PPP loan and there are funds available

There is still more than $100B left in the second round of PPP funding.  For small businesses that may have held off applying for various reasons, they still have until June 30th to apply for PPP funding.

EIDL funds are open again

On Monday, June 15, 2020, the SBA reopened the Economic Injury Disaster Loans (EIDL) application to all businesses. So, there may be an another source of funds available to some businesses.

We Are Here to Help

Warady & Davis LLP will host a LIVE Webinar with Q&A on the new PPP Loan Forgiveness Application Process and Guidance – Wednesday, June 24, 2020, from 3 – 4:15 p.m.  REGISTER.

Please visit the Warady & Davis LLP COVID-19 Resource Center for a wealth of information on stimulus assistance, new legislation and much more.  This information is updated regularly.  This is a rapidly evolving situation so please do not hesitate to reach out to us with any questions or concerns at 847-267-9600 or info@waradydavis.com.


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