SBA Releases Revised PPP Loan Forgiveness Applications

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Earlier this month President Trump signed the Paycheck Protection Program Flexibility Act of 2020 (PPPFA) into law (see our Alert). Among other changes, PPPFA made important revisions to the guidelines to claim full or partial forgiveness of the Paycheck Protection Program (PPP) loans many businesses received under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

 

On Wednesday, the US Treasury and US Small Business Administration (SBA) unveiled an updated PPP Loan Forgiveness Application Form 3508 reflecting the changes enacted in PPPFA. The form should be completed, signed, and submitted to the lender no later than 10 months after the end of the Covered Period to claim the allowed forgiveness amount. This enables continued deferral of principal and interest on any portion of PPP loans that is not forgiven.

 

The new applications also clarified compensation paid to owners (owner-employees, self-employed individuals, or general partners). For borrowers using a 24-week Covered Period, this amount is capped at $20,833 (the 2.5-month equivalent of $100,000 per year) for each individual or the 2.5-month equivalent of their applicable compensation in 2019, whichever is lower. For borrowers using an eight-week Covered Period, this amount is capped at $15,385 (the eight-week equivalent of $100,000 per year) for each individual or the eight-week equivalent of their applicable compensation in 2019, whichever is lower.

 

In addition, the SBA released PPP Loan Forgiveness Application Form 3508EZ which requires less documentation and fewer calculations. Form 3508EZ applies to borrowers who meet any one of these three criteria:

 

  • Applied for the PPP loan as a self-employed individual, independent contractor, or sole proprietor who had no employees at the time of the PPP loan application and did not include any employee salaries in the computation of average monthly payroll in the Borrower Application Form (SBA Form 2483),
  • Did not reduce annual salary or hourly wages of any employee making less than $100,000 per annum by more than 25% during the Covered Period and did not reduce the number or the average paid hours of employees. An exception is given when there is an inability to rehire or hire similarly qualified employees for unfilled positions or if the employee refuses an offer of restored work hours, or
  • Did not reduce annual salary or hourly wages of any employee making less than $100,000 per annum by more than 25% during the Covered Period and did not reduce the number or the average paid hours of employees. An exception is given when borrower is unable to operate at the same level of business activity as a result of health directives related to COVID-19.

 

A borrower must spend its PPP loan on eligible costs within a defined "Covered Period" for those costs to be eligible for forgiveness. Originally eight weeks from the date of loan disbursement under the CARES Act, the covered period was extended to 24 weeks under PPPFA. Recognizing that borrowers that took out loans before the new law was enacted may have started to take action based on the eight-week Covered Period available when they received the loan, Congress allowed those borrowers to choose either an eight or 24-week period. Borrowers who received loans after enactment of PPPFA must use a 24-week covered period. Thus:

 

  • For loans disbursed on or after June 5, 2020, the extended Covered Period begins when the loan funds are received. It ends 24 weeks from that date or by December 31, 2020, whichever is earlier.
  • For loans disbursed before June 5, 2020, borrowers can choose either the extended Covered Period or elect to use the eight-week Covered Period available when they received the loan. If the 8-week Covered Period is elected, the period can start on one of two dates: 1) the day the loan funds were received, or 2) the first day of the first bi-weekly (or more frequent) pay period after the loan funds were received.

 

LM Cohen has partnered with the payroll services company Paychex to provide our clients and friends with Paychex's Paycheck Protection Program (PPP) Loan Forgiveness Estimator. This tool can assist borrowers to understand how much of their PPP loan may be forgiven and how much must be paid back.

 

Before using the estimator, borrowers should gather eligible payroll and non-payroll costs (mortgage interest, rent, and utilities) paid or incurred during the Covered Period. Details of wage reductions of more than 25% for those employees making less than $100,000 per annum and the number of Full-Time Equivalent (FTE) employees should also be determined. If the Covered Period is not yet over, borrowers may project potential forgiveness by estimating upcoming costs.

 

The Loan Forgiveness Estimator is provided for informational purposes. The amount of a borrower's PPP loan that may be forgiven is an estimate only and based solely on current guidance, which is subject to change. The SBA has stated it intends to issue additional guidance relating to PPP loan forgiveness. Neither Paychex nor LM Cohen & Company is responsible for the accuracy of this content. The information in these materials should not be considered legal, accounting, investment, or fiduciary advice. If borrowers require legal or investment advice, or need other professional assistance, they should always consult with their attorney or other professional advisor to discuss their particular facts and circumstances.

 

During this crisis, your LMC professional is available if you have questions related to the latest updates on this topic. All our prior Alerts are available on the Updates page of our website.

 

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