Last week, the Small Business Administration (SBA) and U.S. Treasury issued new guidance with the goal of further simplifying the Paycheck Protection Program (PPP) loan forgiveness process for both lenders and borrowers. The new forgiveness application applies to loans in the amount of $50,000 or less and most notably does not require eligible borrowers to reduce their loan forgiveness amount if they had a reduction in the amount of salaries and wages or full-time equivalent employees (FTEs). Additionally, the new form requires fewer calculations and less documentation.
The new one-page PPP loan forgiveness application, Form 3508S, is available on the SBA’s website and can be viewed on the Small Business Administration website.
Previously, the SBA had taken steps to ease forgiveness when they released the “EZ” forgiveness application in June. The SBA then went on to begin accepting forgiveness applications in August, but with the Rubio-Collins Bill pending requesting the SBA automatically forgive PPP loans in the amount of $150,000 or less, many borrowers have been waiting to apply for forgiveness.
Forgiveness Guidelines Under Form 3508S
Last week, the SBA and U.S. Treasury reeled that amount in with the newly released Form 3508S. The new application applies to loans in the amount of $50,000 or less, which impact 68% of PPP borrowers, but only 12% of all PPP money lent to borrowers.
Here are four ways the new forgiveness application eases the forgiveness process for eligible borrowers:
- If the borrower had a reduction in the number of FTEs on its payroll, there will no longer be a reduction in forgiveness amount.
- If the borrower reduced salaries and wages by more than 25%, there will no longer be a reduction in forgiveness amount.
- Employee information is not required to be reported on Form 3508S.
- The loan forgiveness amount can simply be stated (using the honor system) on Form 3508S without showing calculations. That said, calculations should still be completed and maintained in the event of an audit.
Three Types of Borrowers the New Forgiveness Application Will Not Benefit
While the new forgiveness form will ease the process for many borrowers, some with loans of $50,000 or less will not benefit from the new rule. Here are three groups of eligible borrowers who will not see great value from the new form:
- Those who have already applied for forgiveness under a previous application. The new forgiveness application is not retroactive and borrowers who have already applied for forgiveness cannot base their forgiveness guidelines on the newly released rules.
- Businesses that belong to a larger organization. Small businesses with PPP loans of $50,000 or less will not be eligible to use Form 3508S if they are part of a larger organization unless the total combined loan amount with all affiliates amounts to less than $2 million.
- Sole proprietors with no employees. Exemptions for reduced FTEs and reduced wages and salaries would not apply to businesses with no employees.
Also included with the release of the new forgiveness application was an interim final rule that states if a borrower of any size PPP loan submits eligible payroll and non-payroll costs exceeding the amount of its PPP loan, the total amount forgiven cannot exceed the original principal amount of the loan.
While the SBA feels the new form “strikes an appropriate balance between the need for simplification in the forgiveness process with the responsibility to protect the integrity of the program and safeguard taxpayer funds”, many accountants are still advising borrowers with PPP loans in the amount of $150,000 or less to continue to wait for new legislation that would automatically forgive smaller loans. Stay-tuned to our blog for further PPP news as it becomes available.