Legal Alerts

COVID-19 Response: Long-Awaited PPP Loan Forgiveness Guidance Answers Some Questions, Raises Others

Washington, D.C. (May 19, 2020) - Late on May 15, 2020, the Small Business Administration published information on the Paycheck Protection Program (PPP) loan forgiveness process, including the Forgiveness Application and some much needed clarification on questions that have perplexed borrowers since the PPP debuted in the CARES Act on March 27, 2020. For many borrowers, however, challenges remain in operationalizing the forgiveness process.

Key Takeaways From the New Guidance

Alternative Payroll Covered Period: A new option allows for aligning the 8-week covered period for loan forgiveness with actual payroll cycles, as opposed to tracking the specific 56-day time period from the date the loan was funded. This is intended to address the administrative burden of conforming payroll schedules with the 8-week “Covered Period.” However, because the Alternative Payroll Covered Period would start on the first day of the regular pay period following the loan disbursement, it also pushes the 8-week forgiveness time period out by up to a week, which may have implications for hiring and retention decisions.

Forgiveness for Covered Costs Incurred But Not Paid During the Covered Period:

  • Eligible Payroll Costs – Payroll costs incurred but not paid during the Covered Period (or Alternative Covered Period) are still eligible for forgiveness so long as they are paid on or before the borrower’s next regular payroll date.
  • Eligible Non-Payroll Costs – Eligible non-payroll costs must have been incurred during the Covered Period and paid on or before the next regular billing date, even if the billing date is after the Covered Period.

Calculation of Headcount FTE: A new determination that average full time equivalency (FTE) for forgiveness purposes is 40 hours.

Exceptions and Safe-Harbors for Reduced Headcount; Reduced Salary/Wages:

  • FTE reductions will not reduce a borrower’s loan forgiveness amount where, during the 8-week covered period, (1) an employee rejected a good-faith, written offer to rehire, and/or (2) an employee (a) was fired for cause, (b) voluntarily resigned, or (c) voluntarily requested and received a reduction in hours.
  • The FTE Reduction Safe Harbor exempts borrowers from a reduction in the loan forgiveness amount based upon a reduction in FTE employees if the borrower reduced its FTE employee levels between February 15, 2020, and April 26, 2020 and then restored headcount by no later than June 30, 2020 to its FTE employee levels in the pay period that included February 15, 2020.

Specifics on Documentation That Borrowers Must Submit With Forgiveness Application:

  • Payroll documentation, including bank statements or third-party payroll service provider reports, tax forms, and payment receipts.
  • Documentation to support FTE calculation, including documentation showing the average number of FTE employees on payroll per month employed by the borrower during the reference period chosen by the borrower.
  • Non-payroll documentation to verify the existence of obligations/services prior to February 15, 2020 and eligible payments from the Covered Period.

Borrower Records and Information to Maintain: In addition, borrowers will be required to maintain, but not submit, underlying documentation to support the application, including information on any employee job offers and refusals, firings for cause, voluntary resignations, and written requests by any employee for reductions in work schedules. Borrowers should maintain all records for a period of six years after the date the loan is forgiven or repaid in full, and permit authorized representatives of SBA to access such files upon request.

Borrowers Beware of Compliance Obligations:

  • The application states that the SBA may direct a lender to disapprove the borrower’s loan forgiveness application if the SBA determines that the borrower was ineligible for the PPP loan.
  • Borrowers will be required to make certain certifications when they apply for forgiveness including that they understand that if the funds were knowingly used for unauthorized purposes, the federal government may pursue recovery of loan amounts and/or civil or criminal fraud charges. Knowingly making a false statement to obtain forgiveness of an SBA-guaranteed loan is punishable by both fines and potential imprisonment.


Even with this additional guidance, borrowers are faced with making important business decisions in the midst of continuing economic uncertainty and what seems to be a constantly moving target in terms of the government’s interpretations of PPP requirements. Lewis Brisbois attorneys are available to help guide decision-making on a case-by-case basis as businesses prepare loan forgiveness applications and documentation packages.

Visit our COVID-19 Response Resource Center for more alerts and information on the many areas of the law impacted by the pandemic.


Karen C. Bennett, Partner

Katherine I. Funk, Partner

Jane C. Luxton, Parner

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