Cares Act Update
Daily Briefing: May 18, 2020
SBA Issues Loan Forgiveness Application
SBA released its long-awaited Loan Forgiveness Application. The application came with no
guidance other than instructions, but it answers most of the questions many of us were asking!
1. Payrolls must be incurred and paid:
Eligible payroll costs include costs paid and incurred during the 56-day covered period or
For weekly and bi-weekly payors, an alternate period can be elected which will cause the 8-
week period to start on the first day of a pay cycle after receipt of funds.
Example: Weekly pay period begins on April 27, 2020. Funds received on April 28, 2020.
Borrowers have the option to select an alternate period, so would select an alternate 8-week
period commencing on Monday May 4, 2020 and ending on June 28, 2020. This alternate
period is for qualified payroll costs only. The application requires the listing of every employee
who was paid during the covered period or alternative period.
2. FTE (Full time equivalent employees). The FTE is calculated using 40 hours per week.
3. Pay rate reduction: Lots of clarity here. There are a series of calculations and safe
harbors that are a little complex, but generally make is easy to pass the test thus
avoiding a reduction due to the fact that your employees may be earning less now than
in the comparison periods.
4. FTE reductions: Again, there are a series of calculations and a nice safe harbor that will
help most employers with a minor reduction avoid a large adjustment to the forgiveness
5. Eligible nonpayroll costs include interest paid during the covered period on covered
mortgage obligations (secured debt) on real and personal business property, covered
rent obligations on business and personal property, and covered utility payments defined
as “payments for a service for the distribution of electricity, gas, water, transportation,
telephone or internet access for service that began before February 15, 2020.”
6. There are provisions for employees re-hired before June 30, 2020, provisions for
employees who were fired, quit, requested a reduction in hours or who retired.
7. Documentation: Documentation must be retained for 6 years. The documentation to
accompany the application to the lender includes:
a) Support for the qualifying payroll costs, including bank account statements, third
party payroll reports for the periods that overlap the covered period or alternative
covered period; payroll tax returns payment receipts/ cancelled checks for
employee health insurance and retirement plans that are included in the forgiven
b) For non-payroll costs, the existence of the obligations for which interest is paid,
leases, etc. to document they were in existence and in force on February 15,
2020. Support including cancelled checks, invoices and contracts for rent,
Documentation required to be retained by the borrower but not submitted includes:
c) Documentation supporting each listed employee including any wage reduction
calculation and any pay period that put an employee in the over $100,000 group.
d) Documentation supporting job offers and refusals, firings for cause, voluntary
resignations and written requests from employees for reduced hours of work.
e) Documentation supporting borrower’s certifications as to the necessity of the loan
request and eligibility.
We recommend that there be a special meeting of the board of directors if applicable to
specifically document the uncertainty and need at the time of the application. The board
should approve the loan.