On June 17, 2020, the U.S. Small Business Administration (SBA), in consultation with the Department of the Treasury, posted a revised version of its forgiveness application for borrowers under the Paycheck Protection Program (PPP), together with a separate set of forgiveness application instructions. The revisions to the previously released forgiveness application are largely driven by the changes made to the PPP under the Paycheck Protection Program Flexibility Act of 2020 signed into law on June 5, 2020, which changes we detailed in a prior post here.
In addition to revising the full forgiveness application, the SBA also posted a new EZ version of the forgiveness application that it described as a “revised, borrower-friendly” version of the application. The new EZ version may be utilized by a subset of borrowers that:
- are self-employed AND have no employees; OR
- did not reduce the annual salary or hourly wages of any employee by more than 25% during its covered period AND did not reduce the number of its employees or the average paid hours of employees between January 1, 2020 and the end of its covered period; OR
- did not reduce the annual salary or hourly wages of any employee by more than 25% during its covered period AND experienced reductions in business activity as a result of health directives related to COVID-19.
While the new EZ version is only three pages, it comes with four pages of instructions and requires a borrower to submit or maintain much of the same documentation that is required under the full forgiveness application (see Page 4 of EZ version instructions).
One interesting clarification in the forgiveness application (which has been confirmed in a new SBA rule also posted June 17th) relates to the maximum owner compensation eligible for forgiveness under the new 24-week covered period (if selected). For a non-owner individual employee, the total amount of cash compensation eligible for forgiveness may not exceed an annual salary of $100,000, as prorated for the covered period. For an 8-week covered period, that total is $15,385. For a 24-week covered period, that total is $46,154. However, for amounts paid to owners (owner-employees, a self-employed individual, or general partners), the capped amount for the 24-week period is different. For borrowers using a 24-week covered period, this amount is capped at $20,833 (the 2.5-month equivalent of $100,000 per year) for each individual owner or the 2.5-month equivalent of their applicable compensation in 2019, whichever is lower. For borrowers using an 8-week covered period, this amount for owners is capped at $15,385 (the eight-week equivalent of $100,000 per year) – same as for non-owner employees. Per the SBA’s new rule, the differing treatment of owner compensation versus non-owner employee compensation under the new 24-week period was to avoid potential windfalls for owners.
We expect guidance to continue to be released by the SBA and Treasury on forgiveness in the coming days, so PPP borrowers are encouraged to frequently check the agencies’ websites for updates.