In recent weeks, the Small Business Administration (SBA) and New York State have rolled out additional guidance and funding with respect to the Paycheck Protection Program (PPP), Economic Injury Disaster Loan Program (EIDL), and similar programs intended to assist small business during the COVID-19 outbreak. This guidance will hopefully allow our clients who have borrowed under PPP to take full advantage of the program, including loan forgiveness for eligible payroll and non-payroll costs. The following is a summary of this series of updates.

Payroll Costs Eligible for Forgiveness:

For the purposes of PPP, payroll costs are defined as compensation in the form of wages, salary, commission payments, bonuses, and hazard pay, including those payments made to furloughed employees. Under the PPP program, employees with an annual salary exceeding $100,000 will not be considered.

SBA guidance confirms that payroll costs may be eligible for forgiveness if they were incurred during an eight-week period beginning on the date of disbursement of the PPP loan proceeds or the first day of the first payroll cycle in the covered period. The guidance further clarifies that payroll costs are considered paid on the day paychecks are distributed and payroll costs are generally incurred on the day the employee’s pay is earned. Borrowers with bi-weekly payroll cycles may elect to use an alternative payroll covered period that begins on the first day of the first payroll cycle in the covered period and continues for eight weeks. Payroll costs in the alternative period will still be eligible for forgiveness as long as they are paid no later than the first regular payroll date after the eight-week period.

Additionally, there are special rules for “owner-employees” (shareholder employees of an S corporation). The guidance provides that the proceeds paid to owner-employees cannot exceed the lesser of $15,385 of cash compensation or 8/52nds of their 2019 cash compensation (approximately 15.38 percent of 2019 compensation), in addition to health insurance and retirement benefits. Similarly, self-employed individuals and general partners are capped by their 2019 net earnings, which is intended to make self-employment income more closely resemble gross wages received by employees that are not increased by any share of payroll taxes. However, for self-employed individuals and general partners, compensation does not include health insurance or retirement plan contributions.

Non-Payroll Costs Eligible for Forgiveness:

For the purposes of PPP, non-payroll costs eligible for forgiveness include the following: (1) interest payments on any business mortgage obligation; (2) payments on real or personal property that was incurred before February 15, 2020; (3) payments on business rent obligations on real or personal property under a lease agreement in force before February 15, 2020; and (4) business utility payments for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020.

SBA guidance confirms that non-payroll costs are eligible for forgiveness if they were either paid during the covered period or incurred during the covered period and paid on or before the next regular billing date, even if the billing date was after the covered period. Borrowers should be mindful, however, that principal payments on mortgage obligations and advance payments of interest on a covered mortgage obligation are not eligible for forgiveness.

Documenting & Calculating FTE Employees:

Borrowers must document and calculate their average number of full-time equivalent (FTE) employees during the covered period. A “full-time equivalent employee” is defined as an employee who works 40 hours or more each week on average. The hours of employees who work less than 40 hours are calculated as proportions of a single FTE employee and then aggregated.

When calculating the number of FTE employees, borrowers must divide the average number of hours paid for each employee per week by 40, capping the answer by 1.0. Borrowers who paid employees for less than 40 hours per week of work may choose to calculate the full-time equivalency in one of two ways. First, the borrower may choose to divide the average number of hours a part-time employee was paid per week by 40 to determine the full-time equivalency rate. Second, the borrower may also use a full-time equivalency of 0.5 for each part-time employee. The borrower must apply the chosen method consistently to all part-time employees. The reduction percentage is then determined by dividing the average FTE employees during the covered period by the average FTE employees during the chosen reference period.

Reductions to Loan Forgiveness:

Borrowers may be subject to reductions in loan forgiveness based on reductions in FTE employees or in employee salary and wages during the covered period. Specifically, a borrower’s loan forgiveness will be reduced if they have reduced the number of FTE employees by 25 percent or reduced an employee’s salaries or wages by 25 percent or more. For each new employee in 2020 and existing employee who was not paid more than $100,000 annualized in any pay period in 2019, the borrower must reduce their total forgiveness amount by the total dollar amount of the reduction that are in excess of 25 percent of base salary or wages between the period of January 1, 2020 and March 31, 2020. This calculation is performed on a per employee basis, not in the aggregate.

However, SBA guidance confirms that furloughed workers who are rehired with fully restored wages and hours by June 30, 2020 will not be counted against the borrower for the purposes of these reductions. Fully restored wages and hours of employees who had their wages or hours reduced will also not be counted against the borrower. If the offer to rehire an employee and/or restore the same wages and hours is rejected by the employee, those reductions will also not count against the borrower for the purposes of reductions to loan forgiveness. The borrower must, however, retain documentation of the offer for re-employment and rejection for this exemption to apply. The borrower must also inform the applicable state unemployment insurance office of the employee’s rejected offer of re-employment within 30 days of the employee’s rejection.

For borrowers who don’t fall within the exclusion, a reduction in FTE employees during either the covered period or the alternative payroll covered period will result in a reduction of loan forgiveness by the same percentage as the percentage reduction in FTE employees. To determine the reduction percentage, borrowers must choose one of three reference periods: (1) February 15, 2019 through June 30, 2019; (2) January 1, 2020 through February 29, 2020; or (3) in the case of a seasonal employer, either of the two preceding methods or a consecutive 12-week period between May 1, 2019 and September 15, 2019.

SBA Review of PPP Loans:

The SBA has announced that it plans to review any PPP loan it deems appropriate. The primary purpose of any such review will be to determine whether the borrower is eligible for a PPP loan based on a myriad of resources, such as the Coronavirus Aid, Relief, and Economic Security (CARES) Act, guidance from the PPP program, and the loan application itself. Aside from eligibility, the SBA will also potentially review whether the amount of the loan was calculated correctly and whether the borrower is entitled to loan forgiveness.

Borrowers are required to retain PPP documentation for six years after the date the loan is forgiven or repaid in full and must allow authorized SBA representatives to access the documents upon request. It is also the borrower’s responsibility to provide accurate calculations and attest to the accuracy of its reported information and calculations on the loan forgiveness application.

If the SBA determines a borrower is ineligible for a PPP loan, the borrower will also be ineligible for loan forgiveness. Section 1106(b) of the CARES Act allows forgiveness of a PPP loan only if the borrower is an “eligible recipient” under 15 USC § 636(a)(36)(A)(iv), which defines “eligible recipient” as an individual or entity eligible to receive a covered loan. Regarding loan forgiveness, a lender must render a decision to the SBA on a loan forgiveness application no later than 60 days after receiving the application from the borrower. The lender will either approve, deny, or deny without prejudice due to a pending SBA review of the loan.

To do so, for each PPP loan forgiveness application, lenders will perform a good-faith review of the borrower’s application. This will include (1) confirming receipt of the borrower certifications; (2) confirming receipt of payroll verification documentation; and (3) confirming the borrower’s calculations. These calculations relate to one of two broad categories, including (1) cash compensation, non-cash compensation, and compensation to owners claimed on lines one, four, six, seven, eight, and nine on PPP Schedule A; and (2) business mortgage interest payments, business rent or lease payments, and business utility payments claimed on lines two, three, and four on the PPP loan forgiveness calculation form. If the SBA determines in its review the borrower is ineligible for a PPP loan or the loan amount claimed, the borrower may appeal the SBA’s determination. The SBA intends to publish additional guidance on the appeals process.

Additional New York State Aid:

New York State Governor Andrew Cuomo recently announced the initiative of a $100 million New York Forward Loan Fund (NYFLF) program intended to help small businesses, small landlords, and not-for-profits. The NYFLF is specifically intended to support businesses and organizations as New York State phases in re-opening, assisting with expenses required to comply with guidelines under the New York Forward Plan. In particular, NYFLF funding is allowed to be used for working capital, marketing, inventory, refitting for new social-distancing guidelines, property taxes, rent, operating and emergency maintenance, utilities, or supplies. Distinct from PPP loans, loans under the NYFLF are nor forgivable and payable over five years with interest-only payments for the first 12 months. Interest rates for these loans are fixed at 3 percent for small business and small landlords and 2 percent for not-for-profits.

For small-businesses, eligibility requires no more than 20 FTE employees with gross revenues of less than $3 million per year. The business must prove that it suffered direct economic hardship as a result of COVID-19 social distancing policies and stay-at-home orders that have materially impacted operation. The business must also have not received a loan from either the SBA, PPP, or EIDL in 2020. If these requirements are met, the small business is eligible to apply for a loan in the amount of the lesser of $100,000 or up to 100 percent of average monthly revenues in any three-month period during 2019 or the first quarter of 2020.

For small landlords, eligibility requires no more than 200 units with no single property greater than 50 units. The properties must be located in a low- or moderate-income census tract or satisfy rent tests that are affordable to low- or moderate-income tenants. The landlord must also not have received a PPP or EIDL loan for COVID-19 in 2020. If these requirements are met, the small landlord is eligible to apply for a loan in the amount the lesser of $100,000 or projected reduction in three-months’ net operating income based on actual reductions in net operating income for the month of April or May 2020.

For not-for-profits, eligibility requires the entity have no more than 20 FTE employees and be organized as a 501(c)(3) or faith-based organization providing direct services. The entity must also have an annual operating budget of less than $3 million per year and prove that it suffered direct economic hardship as a result of COVID-19 social distancing policies and stay-at-home orders that have materially impacted operation. The entity must also have not received a PPP or EIDL loan for COVID-19 in 2020. If these requirements are met, the not-for-profit is eligible to apply for a loan in the amount of the lesser of $100,000 or up to 100 percent of average monthly expenses in any three-month period during 2019 or the first quarter of 2020.

Pre-applications are available at: The online pre-application should be completed and submitted by the owner of the business with the largest ownership interest or by a member of a not-for-profit’s executive team. Priority is given to industries that have reopened, and applications will be reviewed on a rolling basis. After an online pre-application has been completed and eligibility is determined, a borrower is matched with a participating community development financial institution lender who will review the request and contact the borrower to start the full loan application.

Trevett Cristo remains committed and available to its clients during this difficult time. Please do not hesitate to contact our firm if you have any questions or concerns.