Chris Nichols (00:00):
I want to welcome PPP borrowers. We're going to talk about, this is the Quick PPP Forgiveness Video
Series. Today, we're going to talk about determining the cover period. With me, I have Josh Harris who
heads up the bank's credit underwriting for PPP loans and forgiveness. And I have John Carpenter from
the CPA firm of Cherry Bekaert. Josh, John, welcome. Josh, do you want to start us off just talking about
the eight to 24 week cover period?
Josh Harris (00:40):
Sure thing, Chris. Thank you. So I guess what I would just provide as some initial highlights for our
listeners here, one of the most important aspects of this entire PPP program specifically when it comes
to applying for forgiveness is understanding this idea or this concept of the covered period. And so I'm a
big guy on making sure everybody understand definitions, and this is one of those ones where covered
period is not necessarily patently obvious, it's not necessarily a self-defining term. So let's start off by
defining this for folks. So the covered period, what this is, is the period during which the PPP loan
proceeds will be spent, and it's also the period during which forgiveness will be calculated. So in order to
be eligible for forgiveness, the funds must have been spent on eligible uses within this covered period
window.
Josh Harris (01:36):
And there are basically two different covered periods. An eight weeks covered period, or a 24 week
covered period, which John is going to go into in more detail. And both of these start as of the date of
the PPP loan funding. Now, there are some caveats to that, and John's going to dive into that, but I think
the real nuts and bolts that I want to make sure our listeners understand is that when you're talking
covered period, this is specifically a forgiveness topic. It's specifically related to our borrowers and them
tracking their expenses during a period following their loan funding. And that's what's going to be used,
this covered period is what's going to be measured to ascertain whether or not they receive full
forgiveness or not. So hopefully that gives a broad enough introduction for folks and at this point I'll
probably hand it off to John so we can go into a little bit more detail.
Chris Nichols (02:32):
John, talk to us about which period a grower should use and how to make that decision.
John Carpenter (02:37):
Sure. Thanks, Chris. Borrowers really have some flexibility here to our way of thinking. I think the biggest
reason to stick with an eight week covered period is probably, A, just be finished with your calculations
and apply for forgiveness, so bring an end to focus on PPP, and, B, if are sticking with an eight week
covered period, then at the end of that period and when they're applying for forgiveness, then they're
relieved of maintaining any FTE levels or maintaining observation of FTE requirements. If a borrower is
going for a longer 24 week period then they do need to be aware of the FTE maintenance requirements
that go along with that. As a reminder, a borrower who needs more than eight weeks to achieve full
forgiveness, that's fine. Borrowers don't have to go the full 24 weeks.
John Carpenter (03:34):
It's now been made clear that once a borrower has spent all their PPP money, and if they basically think
that they meet the requirements of having accumulated forgivable expenses that will give them 100%
forgiveness, then they are free to apply for forgiveness prior to 24 weeks, and I think the bank wouldencourage people to do so. So a couple of things to think about as borrowers move toward forgiveness.
Keep in mind, as one of the requirements, at least 60% of the forgiveness amount has to have been
spent on payroll costs, which is basically wages plus certain employer portion of benefits. That's a
minimum in order to achieve full forgiveness. That does not mean that, say, you spent 58% of your PPP
funds on payroll costs, does that mean you get zero forgiveness? Not at all. It just means your
forgiveness amount is going to be prorated down by a few percentage points. And then, as we said,
borrowers have this option of eight or 24 weeks.
John Carpenter (04:40):
The costs that they're incurring, these are for wages of employees whose primary residences in the U.S.,
that alternative covered period can only be used by borrowers whose regular payroll cycle is either biweekly or more frequently. So, generally, bi-weekly or weekly, and what that alternative covered period
is going to run is that borrowers can start that on the first day of the pay period after they got their PPP
money and then go for eight weeks thereafter. By doing so, borrowers can include wages that are either
paid or accrued during that covered period. So, for example, you got your PPP loan, let's say, on April 27,
and you ran a payroll on April 30th, that payroll can count even though the period that it covered
probably started quite a bit, perhaps a couple of weeks before you got your PPP money. And on the
backend of the forgiveness period, all wages accrued up through the last day of the forgiveness period
can be included so long as they are paid out of the next regular pay date, which occurs right after the
end of the forgiveness period.
John Carpenter (06:02):
In that box that we have there third from the left, we point out what's considered the effective date of
payroll? Well, the effective date is either the date that paychecks are handed out or the effective date
that the borrower originates ACH deposits, like direct deposit. Those may actually be two different
dates. We would tend to say that because the ACH deposits are going to be originated earlier that's
probably the effective date that people should use. And then last little note here, keep in mind that
whatever forgiveness period you're using, there are caps on how much is eligible to be forgiven. For
employees who are not owners you're limited to $15,385 per person over an eight week period or
$46,154 if you're using a 24 week period. It's really unclear, what if you use a 12 week period, can you
still use $46,000? We tend to think not. We suspect borrowers should really be prorating that $46,000
amount if their forgiveness period is something between eight and 24 weeks.
John Carpenter (07:19):
So there's a few considerations there about which period works. But, in general, we would probably say
borrowers should go with a longer forgiveness period if that will enable them to achieve emulate more
forgivable expenses, get them up to that 100% forgiveness amount that everybody is seeking perfect.
Chris Nichols (07:39):
Perfect. Well, Josh, John, appreciate the time and the insight. Anything else to add? Do you think that
wraps it up?
Josh Harris (07:45):
Yeah, I think so. I think that wraps it up.
Chris Nichols (07:47):Excellent. With that, I appreciate the insight. And to PPP borrowers, please be sure to check the website
and tune back in for more in this quick video series. We appreciate the time. Thank you all. Bye.