by Jeff Wolstoncroft, CPA

With the Small Business Administration (SBA) opening the portal for banks to apply for forgiveness, we wanted to take a moment to let you know the documents you may need in regard to PPP forgiveness.

Please note, we continue to promote patience when it comes to applying for PPP forgiveness. While the SBA has opened the process of forgiveness, our understanding of the situation is that many banks may not be ready to start the process for their clients. As such, there may be a number of issues that your financial institution may need to resolve before processing your application for forgiveness.

Per the Paycheck Protection Program Loan Forgiveness Application Instructions – Revised June 16, 2020 – documents that each borrower must submit with its PPP Loan Forgiveness Application are as described below.

Payroll

Documentation verifying the eligible cash compensation and non-cash benefit payments from the Covered Period or the Alternative Payroll Covered Period consisting of each of the following:

• Bank account statements or third-party payroll service provider reports documenting the amount of cash compensation paid to employees.
• Tax forms (or equivalent third-party payroll service provider reports) for the periods that overlap with the Covered Period or the Alternative Payroll Covered Period:
  1. Payroll tax filings reported, or that will be reported, to the IRS (typically, Form 941); and
  2. State quarterly business and individual employee wage reporting and unemployment insurance tax filings reported, or that will be reported, to the relevant state.
• Payment receipts, cancelled checks, or account statements documenting the amount of any employer contributions to employee health insurance and retirement plans that the Borrower included in the forgiveness amount (PPP Schedule A, lines (6) and (7)).

Full-time Equivalent (FTE)

Documentation showing (at the election of the Borrower):

• The average number of FTE employees on payroll per week employed by the Borrower between February 15, 2019, and June 30, 2019;
• The average number of FTE employees on payroll per week employed by the Borrower between January 1, 2020 and February 29, 2020; or
• In the case of a seasonal employer, the average number of FTE employees on payroll per week employed by the Borrower between February 15, 2019, and June 30, 2019; between January 1, 2020, and February 29, 2020; or any consecutive 12-week period between May 1, 2019, and September 15, 2019.

The selected time period must be the same time period selected for purposes of completing PPP Schedule A, line 11. Documents may include payroll tax filings reported, or that will be reported, to the IRS (typically, Form 941) and state quarterly business and individual employee wage reporting and unemployment insurance tax filings reported, or that will be reported, to the relevant state. Documents submitted may cover periods longer than the specific time period.

Nonpayroll

Documentation verifying existence of the obligations/services prior to February 15, 2020, and eligible payments from the Covered Period:

• Business mortgage interest payments: Copy of lender amortization schedule and receipts or cancelled checks verifying eligible payments from the Covered Period; or lender account statements from February 2020 and the months of the Covered Period through one month after the end of the Covered Period verifying interest amounts and eligible payments.
• Business rent or lease payments: Copy of current lease agreement and receipts or cancelled checks verifying eligible payments from the Covered Period; or lessor account statements from February 2020 and from the Covered Period through one month after the end of the Covered Period verifying eligible payments.
• Business utility payments: Copy of invoices from February 2020 and those paid during the Covered Period and receipts, cancelled checks, or account statements verifying those eligible payments.

Documents that each borrower must maintain, but that do not need to be submitted

• Documentation supporting the listing of each individual employee in PPP Schedule A Worksheet Table 1, including the “Salary/Hourly Wage Reduction” calculation, if necessary.
• Documentation supporting the listing of each individual employee in PPP Schedule A Worksheet Table 2; specifically, that each listed employee received during any single pay period in 2019 compensation at an annualized rate of more than $100,000.
• Documentation regarding any employee job offers and refusals, refusals to accept restoration of reductions in hours, firings for cause, voluntary resignations, written requests by any employee for reductions in work schedule, and any inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020.
• Documentation supporting the certification, if applicable, that the Borrower was 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 established or guidance issued between March 1, 2020, and December 31, 2020, by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to the maintenance of standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19. This documentation must include copies of the applicable requirements for each borrower location and relevant borrower financial records.
• Documentation supporting the PPP Schedule A Worksheet “FTE Reduction Safe Harbor 2.”

All records relating to the Borrower’s PPP loan, including documentation submitted with its PPP loan application, documentation supporting the Borrower’s certifications as to the necessity of the loan request and its eligibility for a PPP loan, documentation necessary to support the Borrower’s loan forgiveness application, and documentation demonstrating the Borrower’s material compliance with PPP requirements. The Borrower must retain all such documentation in its files for six years after the date the loan is forgiven or repaid in full, and permit authorized representatives of SBA, including representatives of its Office of Inspector General, to access such files upon request.

Questions

As always, if you have questions, feel free to contact your H2R CPA liaison.

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