There is now improved guidance on calculation methods, definitions of forgivable expenses and the documents that must be submitted with the forgiveness request.
The SBA released its Paycheck Protection Program (PPP) Loan Forgiveness Application and clarified a few critical definitions and documentation requirements in their instructions. The forgiveness application is completed by the small-business borrower and is submitted to their bank or lender whom they received their PPP loan from. The application consists of 11 lines that when calculated results in the amount of forgiveness a small-business owner will be eligible for. The forgiveness component of PPP is what attracted small-business owners to take out PPP loans in droves, as the program promised forgiveness of amounts loaned so long as the small business used the funds for payroll, business mortgage interest, rent and utilities. For a summary on forgiveness rules please refer to my prior article here.
Three-Part Calculation Method
The application consists of a three-part calculation to determine the amount eligible for forgiveness. First, the application asks for the payroll and qualifying non-payroll costs that the business has spent over the eight-week period since it received its PPP funds (more on the updated definition of these costs later). The second step is a reduction in the forgiveness amount if you have reduced pay for employees greater than 25 percent or if you have not brought back the same number of full-time equivalent employees (more on that definition later). The full-time equivalent employee (FTE) rule requires a small business to reduce its forgiveness request if it does not bring back the same number of employees that it had pre-pandemic. The application does provide for a waiver of this reduction if the business failed to bring back its same employee count during its eight-week period but later brought back the same number of employees by June 30, 2020.
Original article here.