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June 18, 2020

SBA Releases Updated Guidance on Loan Forgiveness

In response to the wave of questions that followed the passing of the Paycheck Protection Program (PPP) Flexibility Act, the Small Business Administration (SBA) released an interim final rule and a revised loan forgiveness application form to assist borrowers with calculating forgiveness.

The Flexibility Act increased the “covered period” from eight to 24 weeks, leaving borrowers unsure of how to calculate the maximum forgiveness amount. Although borrowers who received loans prior to June 5, 2020, may elect to use the original eight-week covered period, those looking to take advantage of the newly extended covered period should be aware of how to maximize their forgiveness.

Borrowers’ payroll costs of up to $100,000 of annualized pay per employee may be eligible for forgiveness under the PPP. For those using the 24-week covered period, the maximum amount of payroll per employee is $46,154 ((24/52) *$100,000). However, partners, employee-shareholders of S corporations, and self-employed individuals utilizing the 24-week covered period will have their compensation capped at two-and-a-half months’ worth of 2019 net profit or compensation, as the case may be, not to exceed $20,833 per individual ((2.5/12) *$100,000).

The Flexibility Act also expanded the availability of safe harbors to borrowers with respect to a reduction in the number of full-time employees. The revised loan forgiveness application reflects this by providing borrowers with two safe harbors. The first is available to borrowers who were unable to operate between February 15, 2020, and the end of the covered period at the same level of business activity as before February 15, 2020, due to compliance with requirements or guidance issued by the Centers for Disease Control and Prevention, the US Department of Health and Human Services, or the Occupational Safety and Health Administration. The second is available to borrowers who’ve fully restored any reduction in number of full-time equivalent employees to an amount equal or greater to the total full-time equivalent employees in the borrower’s pay period inclusive of February 15, 2020, by the earlier of December 31, 2020, or the date of submission of the loan forgiveness application.

Finally, the revised loan forgiveness application reflects the change made by the Flexibility Act, which decreased the amount of funds required to be spent on payroll costs from 75 to 60 percent.

In addition to the fully revised loan forgiveness application, the SBA also released an “EZ” version. The EZ version of the loan forgiveness application requires fewer calculations and less documentation for eligible borrowers. The EZ application can be used by borrowers who:

(i) Are either a self-employed individual, independent contractor, or sole proprietor and did not have any employees at the time of the PPP loan application, or

(ii) During the covered period or the alternative payroll covered period, did not reduce the salaries or wages of their employees by more than 25 percent and did not reduce the number of employees or the average hours of their employees compared to the period between January 1, 2020, and March 31, 2020, or

(iii) Did not reduce the salaries or wages of their employees by more than 25 percent during the covered period or the alternative payroll covered period compared to the period between January 1, 2020, and March 31, 2020, and experienced reductions in business activity as a result of health directives related to COVID-19.

The revised loan forgiveness application should be read in conjunction with the previous version, which was effective May 16, 2020, for borrowers to understand the defined terms used, the costs eligible for forgiveness, and the documents that must be either submitted with the application or retained by the borrower. We are anticipating additional guidance will be published to provide further clarity to participants of the PPP.

If you have any questions regarding the content of this alert, please contact Roger Cominsky, Financial Institutions & Lending Practice Area chair, at; Danielle Katz, associate, at; or another member of the firm’s Financial Institutions & Lending Practice Area.

We also have a specific team of Barclay Damon attorneys who are actively working on assessing regulatory, legislative, and other governmental updates related to COVID-19 and who are prepared to assist clients. Please contact Yvonne Hennessey, COVID-19 Response Team leader, at or any member of the COVID-19 Response Team at

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