“SIMPLIFIED” PPP Loan Forgiveness

Oct

9

“SIMPLIFIED” PPP Loan Forgiveness

Yesterday, October 8, the US Department of the Treasury provided new guidance and released a third version of the PPP Loan Forgiveness Application, Form 3508S, targeting PPP loans of $50,000 or less.  Borrowers holding PPP loans of $50,000 or less are exempt from any reductions in forgiveness due to:

  1. Reductions in full-time equivalent (FTE) employees, and
  2. Reductions to employee hourly wage rates and/or annualized salaries.

Borrowers should understand that this is not “automatic forgiveness” due to the fact that borrowers will still be obligated to file Form 3508S with their lender (or use their lender’s portal to file an equivalent form).  In comparison to Form 3508EZ, borrowers are not required to report payroll or non-payroll numbers when preparing Form 3508S.  This simplified form only requires the borrower to report:

  • Demographic information
  • SBA loan information
  • Covered period dates
  • Confirmation to the required representations and certifications listed in the forgiveness application.

PPP Loan Forgiveness Application Options Overview

As there have been many changes to the PPP loan forgiveness application process, with varying versions of forms and requirements, we have listed a recap of those options below to aid borrowers in making an informed decision:

Form 3508S – PPP Loan Forgiveness Application –SIMPLIFIED (Link to SBA Form)

  • PPP loans of $50,000 or less
  • Required Information:
    • Demographic information
    • SBA loan information
    • Covered period dates
    • Confirmation to the required representations and certifications listed in the forgiveness application.
    • Provide supporting documentation for payroll and non-payroll costs (even though numbers are not reported on the application form)
  • Excluded Calculations/Information:
    • Payroll costs
    • Business mortgage interest expense(s)
    • Business rent or lease expense(s)
    • Business utility expense(s)
    • Reductions in full-time-equivalent (FTE) employees
    • Reductions in employee hourly wages and/or annualized salaries
    • Schedule A
  • Benefits
    • Streamlined forgiveness process for smaller PPP loans
    • Expected shorter forgiveness processing time for lenders and SBA

Form 3508EZ – PPP Loan Forgiveness Application –EZ (Link to SBA Form)

  • PPP loans of all sizes that meet one of the below criteria:
    • The borrower is 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).
    • The borrower did not reduce annual salary or hourly wages of any employee by more than 25 percent during the Covered Period or the Alternative Payroll Covered Period AND 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.
    • The borrower did not reduce annual salary or hourly wages of any employee by more than 25 percent during the Covered Period or the Alternative Payroll Covered Period AND the borrower was unable to operate during 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.
  • Required Information:
    • Demographic information
    • SBA loan information
    • Covered period dates
    • Payroll costs
    • Business mortgage interest expense(s)
    • Business rent or lease expense(s)
    • Business utility expense(s)
    • Confirmation to the required representations and certifications listed in the forgiveness application.
    • Provide supporting documentation for payroll and non-payroll costs (even though numbers are not reported on the application form)
  • Excluded Calculations/Information:
    • Reductions in full-time-equivalent (FTE) employees
    • Reductions in employee hourly wages and/or annualized salaries
    • Schedule A
  • Benefits
    • Streamlined forgiveness process for borrowers that did not have a reduction in FTEs or hourly wages/annualized salaries
    • Streamlined forgiveness process for borrowers significantly impacted by COVID-19 restrictions to their business’ operations

Form 3508 – PPP Loan Forgiveness Application –STANDARD (Link to SBA Form)

  • PPP loans of all sizes
  • Required Information:
    • Demographic information
    • SBA loan information
    • Covered period dates
    • Payroll costs
    • Business mortgage interest expense(s)
    • Business rent or lease expense(s)
    • Business utility expense(s)
    • Reductions in full-time-equivalent (FTE) employees
    • Reductions in employee hourly wages and/or annualized salaries
    • Schedule A
    • Confirmation to the required representations and certifications listed in the forgiveness application.
    • Provide supporting documentation for payroll and non-payroll costs (even though numbers are not reported on the application form)
  • Benefits
    • Provide the most information for the borrower’s situation, leaving less room for either the lender or SBA to question reductions for FTEs and/or hourly wage rates/annualized salaries.

As we have discussed in past messages to you, borrowers will need to understand their respective lender’s process, as certain lenders have established their own portals to receive the necessary information from borrowers.  As this announcement is still fresh, lenders will likely need some time to modify their portals to account for this new simplified forgiveness application.

Additional SBA Announcements

We have heard certain borrowers received letters and e-mails from their lenders informing them that their required PPP loan payments will be due in the next few months.  The SBA issued an additional FAQ on Wednesday, October 7, discussing this issue.

Question: The Paycheck Protection Program Flexibility Act of 2020 (Flexibility Act) 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 loan forgiveness covered period). Previously, the deferral period could end after 6 months. Are lenders and borrowers required to modify promissory notes used for PPP loans to reflect the extended deferral period?

Answer: The extension of the deferral period under the Flexibility Act automatically applies to all PPP loans. Lenders are required to give immediate effect to the statutory extension and should notify borrowers of the change to the deferral period. SBA does not require a formal modification to the promissory note. A modification of a promissory note to reflect the required statutory deferral period under the Flexibility Act will have no effect on the SBA’s guarantee of a PPP loan.

As such, required payments on PPP loans do not begin until:

  1. The SBA communicates its determination on PPP loan forgiveness to the lenders, OR
  2. 10 months following the end of the covered period if a loan forgiveness application has not been filed with the lender

Additionally, while the FAQ indicates that a modification to the promissory note is not required, we do expect lenders to modify their promissory notes to conform to the statutory language in instances where borrowers have a remaining loan balance following the SBA’s forgiveness determination.  However, this will likely be a lender-specific process and determination.

Please reach out to us with any questions.