PPP Update – SBA Issues New Simplified Forgiveness Application for Small Loans

On October 8, 2020, the Small Business Administration “(SBA”) provided a simpler forgiveness application for PPP loans of $50,000 or less. The key simplification is that the borrower can ignore reductions in either employee headcounts or of salaries or wages!

If you are eligible to use the simpler PPP loan forgiveness form, you probably want to do so. The new 3508S application form is easy to complete. The form asks for identifying information including your business name, contact information, tax identification number, the loan number and amount.

Instead of having to show your forgiveness amount calculation as you do on the 3508EZ application form, you need to certify the following seven things:

1. The dollar amount for which forgiveness is requested does not exceed the principal amount of the PPP loan and: a) was used to pay costs that are eligible for forgiveness (payroll costs to retain employees; business mortgage interest payments; business rent or lease payments; or business utility payments); b) includes payroll costs equal to at least 60% of the forgiveness amount; c) if a 24-week Covered Period applies, does not exceed 2.5 months’ worth of 2019 compensation for any owner- employee or self-employed individual/general partner, capped at $20,833 per individual; and d) if the Borrower has elected an 8-week Covered Period, does not exceed 8 weeks’ worth of 2019 compensation for any owner-employee or self-employed individual/general partner, capped at $15,385 per individual.
2. I understand that if the funds were knowingly used for unauthorized purposes, the federal government may pursue recovery of loan amounts and/or civil or criminal fraud charges.
3. The Borrower has accurately verified the payments for the eligible payroll and nonpayroll costs for which the Borrower is requesting forgiveness and has accurately calculated the forgiveness amount requested.
4. I have submitted to the Lender the required documentation verifying payroll costs, the existence of obligations and service (as applicable) prior to February 15, 2020, and eligible business mortgage interest payments, business rent or lease payments, and business utility payments.
5. The information provided in this application and the information provided in all supporting documents and forms is true and correct in all material respects. I understand that knowingly making a false statement to obtain forgiveness of an SBA guaranteed loan is punishable under the law, including 18 USC 1001 and 3571 by imprisonment of not more than five years and/or a fine of up to $250,000; under 15 USC 645 by imprisonment of not more than two years and/or a fine of not more than $5,000; and, if submitted to a Federally insured institution, under 18 USC 1014 by imprisonment of not more than thirty years and/or a fine of not more than $1,000,000.
6. The tax documents I have submitted to the Lender are consistent with those the Borrower has submitted/will submit to the IRS and/or state tax or workforce agency. I also understand, acknowledge, and agree that the Lender can share the tax information with SBA’s authorized representatives, including authorized representatives of the SBA Office of Inspector General, for the purpose of ensuring compliance with PPP requirements and all SBA reviews.
7. I understand, acknowledge, and agree that SBA may request additional information for the purposes of evaluating the Borrower’s eligibility for the PPP loan and for loan forgiveness, and that the Borrower’s failure to provide information requested by SBA may result in a determine.

The foregoing certifications also appear on the 3508EZ as well. However, the 3508S removes three important certifications:

1. The Borrower did not reduce salaries or hourly wages by more than 25 percent for any employee during the Covered Period or Alternative Payroll Covered Period compared to the period between January 1, 2020 and March 31, 2020
2. The Borrower did not reduce the number of employees or the average paid hours of employees between January 1, 2020 and the end of the Covered Period (other than any reductions that arose from an inability to rehire individuals who were employees on February 15, 2020, if the Borrower was unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020, and reductions in an employee’s hours that a borrower offered to restore and were refused).
3. 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.

The Upside

The new simplified forgiveness application form removes any reduction of forgiveness if the borrower had to let go of employees and didn’t hire them back and/or reduced wages. That eliminates a very onerous and tedious part of the application process for small borrowers!

According to the SBA, there are approximately 3.57 million outstanding PPP loans of $50,000 or less, totaling approximately $62 billion of the $525 billion in PPP loans. In addition, approximately 1.71 million PPP loans of $50,000 or less were made to businesses that reported having zero employees (presumably not counting the owner as an employee) or one employee.

Therefore, the hope is this new application will make it simpler for a lot of people!

The Downside

You still must collect and submit documentation of your spending. For example, you will need to submit payroll documentation that shows you spent at least 60 percent of your PPP money on salary, wages, health insurance, state and local taxes and retirement benefits. However, if you use an outside payroll service, that should make this process much easier!

You will also need to submit documentation for the non-payroll costs you spent PPP money on.

Nonpayroll Costs

The 3508S instructions provide that in order to include nonpayroll costs in the forgivable amount, borrowers need to supply “Documentation verifying existence of the obligations/services prior to February 15, 2020 and eligible payments from the Covered Period.”

Specifically, for mortgage and loans, a borrower submits a copy of the 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.

For rental or lease payments, a borrower submits a copy of the 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.

Finally, for business utility costs, a borrower submits copies of invoices from February 2020 and those paid during the Covered Period and receipts, cancelled checks, or account statements verifying those eligible payments

Understanding the Covered Period

Borrowers who received their PPP loans before June 5, 2020 have the option to use an 8-week spending window, follow funding of the PPP loan. (The 8-week “covered period.”) Most borrowers will want to use the standard 24-week spending window, or “covered period, “ as a larger spending window makes accumulating enough spending to get full forgiveness much easier.

Utilizing the 24-week spending window likes means a borrower only needs to submit records from the payroll service. (The PPP loan provided roughly 10 weeks of payroll, which means businesses should have more than enough payroll spending within a 24-week window.)

Further, if a borrower uses the 8-week spending window, the forgivable owner payroll drops to the lesser of 8 weeks’ worth of 2019 compensation for any owner-employee or self-employed individual/general partner or $15,385 per individual, as compared to the larger $20,833 limit for owners when a 24-week covered period.

Final Thought on New PPP Forgiveness Application

As a result of the new simplified rules for borrowers whose PPP loans are $50,000 or less, as soon as it has been 24 weeks since you received your PPP money, you can apply for forgiveness and will likely only need to submit the payroll reports, whether from your payroll service provider or otherwise, to show sufficient eligible costs to obtain full forgiveness!