Safe Harbor Opens Opportunities for PPP Forgiveness

Small business owners who had to cut back on business activity during the coronavirus pandemic can still have Payroll Protection Program loans forgiven, even if they reduced payroll. 

New guidance from the U.S. Small Business Administration and the Department of Treasury provides a safe harbor for small businesses that did not rehire all workers laid off during the pandemic. 

According to the SBA’s revised application for loan forgiveness, the safe harbor applies to businesses that could not operate between Feb. 15 and the end of the time period covered by loan at the same capacity as before Feb. 15. These businesses had to reduce capacity because they were complying with requirements or guidance issued between March 1 and Dec. 31 “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 for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19.” 

For full forgiveness, employers choosing the safe harbor must still use at least 60 percent of the loan proceeds on payroll costs. 

The SBA also issued a second forgiveness application that requires business owners to provide less documentation and fewer calculations when requesting forgiveness. 

The form, referred to as the EZ loan forgiveness application, can be used by small business owners if they meet one of the following requirements: 

  • Are self-employed and have no employees. 
  • Did not reduce the salaries or wages of their employees by more than 25 percent and did not reduce the number or hours of their employees. 
  • Experienced reductions in business activity as a result of health directives related to COVID-19 and did not reduce the salaries or wages of their employees by more than 25 percent. 

Both forgiveness applications now reflect changes made by the recent PPP Flexibility Act, including giving borrowers the option of using an 8-week loan period or an extended 24-week period.