The Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law on March 27, 2020, provided the Small Business Administration (SBA), the authority under a new program titled the “Paycheck Protection Program” (PPP), to forgive up to the full principal amount of loans guaranteed under this program. In general, subject to several limitations, the eligible forgiveness amount covers payroll costs and non-payroll costs, such as business mortgage interest payments, business rent obligations and business utility payments paid during the covered period.

In order to receive loan forgiveness, the borrower must complete a Loan Forgiveness Application (SBA Form 3508), which is available on the SBA website, or the equivalent application as required by their lender. SBA Form 3508 includes instructions providing a step-by-step guide to calculate the loan forgiveness amount. These instructions will walk a borrower through the costs eligible for forgiveness, the covered or alternate covered period, as well as any reductions as a result of shrinkage in full-time equivalent employees or in salaries and wages. Interestingly, there is an exemption to the reduction available for employees whom the borrower offered to rehire but that offer was declined.

Lenders will then have 60 days to issue a decision on the loan forgiveness and request payment from the SBA for the forgiveness amount plus interest through the date of payment. Borrowers will be notified by their lenders of the forgiveness amount and, if denied or only partially forgiven, they will need to repay any remaining amount on or before the two-year maturity of the loan.