PPP Loan Forgiveness Simplified for Some
If you were a qualifying small business when the Covid-19 pandemic broke out in the US, you may have applied for and hopefully received a Paycheck Protection Program (PPP) forgivable loan from the Small Business Administration (SBA). Those loans certainly have been a lifeline for many small businesses in our great land.
The "covered period" for many if not most of the loan recipients, especially those who were early filers, has now or will soon close, meaning attention is quickly turning to applying for loan forgiveness. Many have delayed applying for forgiveness hoping the process would be simplified or perhaps even eliminated through some form of automatic forgiveness.
Guidance and procedures have been slow to come forth. In May, the SBA first released Form 3508, a 16-page behemoth if you include schedules and instructions that left many, well just about everyone, dazed and confused. So much so in fact that most financial institutions for some time would not accept forgiveness applications because of the "need for further guidance." There were just too many unanswered questions.
Then in June, the SBA released a revised version of 3508 to reflect more law changes and at the same time released Form 3508EZ that did remove the requirement to submit Schedule A and somewhat further simplified the process for borrowers that qualified to use the form.
Still, with 5.2 million PPP loans made, there were complex calculations that had to be done (and reviewed) that were daunting in scope. Borrowers (and many lenders) continued to wait. Partially, this was because the longer we waited, the more borrower-friendly guidance seemed to trickle out from the SBA.
But also, it was because the conventional wisdom, based on informal conversations with officials, was that relief in the form of automatic forgiveness for many borrowers would be forthcoming. It was generally believed that loans of $150,000 or less would eventually be automatically forgiven, either administratively by the SBA or by an act of Congress. Indeed, several bills have been introduced in Congress to do just that, but with no action taking place on of them, so still we waited.
It appears now that the SBA, despite what was being said informally, has little intention of granting automatic forgiveness. Their last move is a clear indication of this.
On Thursday, October 8, the SBA released new Form 3508S for use to apply for forgiveness of PPP loans of $50,000 or less. While not automatic forgiveness, it's clearly a simpler process for these borrowers than the previously issued two forms. Caveat: it cannot be used by a borrower who, together with their affiliates, received loans totaling $2 million or more.
What makes it simpler? For one thing, it's only one page. Form 3508S also requires fewer computations and less documentation to be submitted. Perhaps most importantly, and this is huge (and not at all in keeping with the CARES Act that created the PPP), borrowers that use SBA Form 3508S are exempt from reductions in loan forgiveness amounts based on reductions in full-time equivalent (FTE) employees or in salaries or wages.
You heard right. For months, PPP loan borrowers have worried themselves silly about not running afoul of the rules by not being able to maintain the necessary number of FTE employees or level of compensation required to obtain full loan forgiveness. Now, for those with loans not exceeding $50,000, that worry is no more!
As said earlier, this does NOT make forgiveness automatic. Borrowers still must calculate the amount of forgiveness based on qualifying costs paid or incurred, but interestingly do not have to show their calculations. However, be aware they ARE subject to SBA review. Further, borrowers still must provide documentation of payroll and nonpayroll qualifying costs.
Still, for the roughly 3.57 million PPP borrowers with loans of $50,000 or less, this is welcome news. And, because this represents almost 70% of the 5.2 million total PPP loans, it is most assuredly good news to PPP lenders, who have much work to do processing forgiveness applications.
As Treasury Secretary Steven Mnuchin said in a news release announcing the move, "Today's action streamlines the forgiveness process for PPP borrowers with loans of $50,000 or less and thousands of PPP lenders who worked around the clock to process loans quickly. We are committed to making the PPP forgiveness process as simple as possible while also protecting against fraud and misuse of funds. We continue to favor additional legislation to further simplify the forgiveness process."