by Steve Whitehill
In early October 2020, the Small Business Administration issued additional Paycheck Protection Program (PPP) guidance for simplified forgiveness for loans of $50,000 or less in order to ease the process from smaller borrowers. The move simplifies the proceeding of financial relief to small businesses and guarantees that taxpayer dollars remain protected throughout the process.
The PPP, which was part of the CARES Act passed by Congress in March, accounts for more than $525 billion in loans supporting America’s smallest businesses. In order to qualify for the loans, businesses must meet certain criteria such as an eight-week or 24-week employee retention period. Currently, the loans aid more than 51 million American jobs, providing stability and economic growth throughout the country.
In early June 2020, Congress extended the deferral period for borrower payments of principal, interest, and fees on all PPP loans, to the date that SBA remits the borrower’s loan forgiveness amount to the lender (or, if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s Covered Period). Previously, the deferral period could end after 6 months. This automatically applies to all PPP loans, and no modification of a promissory note to reflect the required statutory deferral period is required. With the updated application process, the SBA intends to make the criteria as clear and understandable as possible. The updated PPP forgiveness process is also intended to be as streamlined and efficient as possible.
Simplified Forgiveness for PPP Loans of $50,000 or Less
The new rule applies to borrowers who received loan amounts of $50,000 or less. However, if borrowers and their affiliates received loans totaling $2 million or more, they cannot apply for the forgiveness under this simplified program. To Facilitate the process the SBA introduced a new Loan Forgiveness Application (SBA Form 3508S) form. It is a simple, one-page form. Treasury Secretary Steven T. Mnuchin stated that they are “committed to making the PPP forgiveness process as simple as possible while also protecting against fraud and misuse of funds.”
One important item to note is that borrowers that use SBA Form 3508S (or lender’s equivalent form) are exempt from any reductions in the borrower’s loan forgiveness amount based on reductions in full-time equivalent (FTE) employees or reductions in employee salary/hourly wages that would otherwise apply.
So what is an FTE?
The U.S. Treasury defines an FTE as any employee who works 40 hours per week or more. Each employee that on average, worked more than 40 hours per week during the particular calculation period, counts as one FTE. One employee cannot be greater than one FTE— overtime does not apply.
The SBA once again reiterated that providing an accurate calculation of the loan forgiveness amount is the responsibility of the borrower, and the borrower attests to the accuracy of its reported information and calculations on the Loan Forgiveness Application. In addition, borrowers will not receive forgiveness without still submitting all required documentation to their PPP Lender supporting their payroll and non-payroll costs. Documentation requirements are similar to those of Form 3508, except for items related to FTE and salary/hourly wage reductions, which are not applicable to the Forgiveness Application Form 3508S.
As with the other PPP Loan Forgiveness Applications (i.e. Forms 3508 and 3508EZ), when a borrower submits SBA Form 3508S or lender’s equivalent form, the lender has the responsibility to:
- Confirm receipt of the borrower certifications contained in the SBA Form 3508S or lender’s equivalent form, and
- Confirm receipt of the documentation the borrower must submit to aid in verifying payroll and non-payroll costs, as specified in the instructions to the SBA Form 3508S or lender’s equivalent form.
Lender Responsibilities with Respect to Eligible Costs in Excess of the PPP Loan Amount
Lastly, where a borrower submits to a lender documentation of eligible payroll and nonpayroll costs that exceed the amount of the borrower’s PPP loan, the IFR (Interim Final Rule) reiterates that the amount of loan forgiveness that a borrower may receive cannot exceed the principal amount of the PPP loan. It is important that you should receive confirmation that you submitted required documentation to the lender to aid in verifying payroll and non-payroll costs, and, if applicable (for SBA Form 3508, 3508EZ, or lender’s equivalent form), and confirmation of the borrower’s calculations of Loan Forgiveness.
While the program still leaves room for improvement, the update is a step in the right direction.
Access the updated application: https://home.treasury.gov/system/files/136/PPP-Loan-Forgiveness-Application-Form-3508S.pdf
To learn more about PPP loan forgiveness, or discuss your options with a professional, contact us by clicking on this link.