Covid-19 Updates

PPP Update: Forms and Guidance on Loan Forgiveness

January 22, 2021

David Neuman, JD

This past Tuesday night, the US Small Business Administration (“SBA”) and Treasury Department published updated Paycheck Protection Program (“PPP”) loan forgiveness guidance and forms, including a one-page application for borrowers that received a PPP loan of $150,000 or less.

This new form, called the PPP Loan Forgiveness Application Form 3508S, can be used by borrowers that received a PPP loan of $150,000 or less. The form seeks information about the borrower’s loan amount, disbursement date, employee totals, covered period dates, amount of the loan spent on payroll, and the amount of the loan for which forgiveness is being sought. Borrowers are not required to submit any supporting documentation with the application but are mandated to maintain payroll, nonpayroll, and other documents that could be requested during an SBA loan review or audit.

The SBA and Treasury Department also released two other PPP loan forgiveness applications: Form 3508 and Form 3508EZ. Borrowers must submit payroll and nonpayroll documentation when applying for loan forgiveness with those forms, which provide lists of the required documents. In addition, the SBA and Treasury released Form 3508D, which certain individuals must use to disclose controlling interest in an entity applying for a PPP loans.

Also released Tuesday night was an interim final rule (“IFR”) consolidating prior PPP loan forgiveness rules and incorporating changes made by The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, P.L. 116-260. Some points included:

–      Payroll costs eligible for forgiveness.

Up to 60% of payroll costs are eligible for forgiveness. Payroll costs consist of compensation to employees (whose principal place of residence is the United States) in the form of salary, wages, commissions, or similar compensation (including wages to furloughed employees and bonuses and hazard pay); cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips); payment for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payment for the provision of employee benefits consisting of group health care or group life, disability, vision, or dental insurance, including insurance premiums, and retirement; payment of state and local taxes assessed on compensation of employees; and for an independent contractor or sole proprietor, wages, commissions, income, or net earnings from self-employment, or similar compensation. Payroll costs that are qualified wages taken into account in determining the Employer Retention Credit are not eligible for loan forgiveness. Forgiveness is available for payments that do not exceed an annual salary of $100,000, as prorated for the period the payments are made or the obligation to make the payments is incurred. 

For purposes of loan forgiveness, the covered period is the period beginning on the date the lender disburses the PPP loan and ending on a date selected by the borrower that occurs during the period: (i) beginning on the date that is 8 weeks after the date of disbursement, and (ii) ending on the date that is 24 weeks after the date of disbursement. The covered periods for a First Draw PPP Loan and a Second Draw PPP Loan cannot overlap; the borrower must use all proceeds of the First Draw PPP Loan for eligible expenses before disbursement of the Second Draw PPP Loan.

–      Loan forgiveness process.

Borrowers must complete and submit the Loan Forgiveness Application and submit to the lender on or before the maturity date of the loan if the borrower has used all of the loan proceeds. For Second Draw PPP Loans in excess of $150,000, the borrower must submit the loan forgiveness application for the First Draw PPP Loan before or simultaneously with the loan forgiveness application for the Second Draw PPP Loan, even if the calculated amount of forgiveness on the First Draw PPP Loan is zero. Lenders have 60 days from receipt to issue a decision regarding forgiveness to the SBA. If the SBA determines the borrower is not eligible for forgiveness, the borrower has until the maturity date of the loan to repay the balance due on the loan. The lender notifies the borrower of the forgiveness amount or if forgiveness is denied. Borrowers that fail to apply for loan forgiveness within 10 months after the last day of the maximum covered period of 24 weeks or after the SBA determines the loan is not eligible for forgiveness (in whole or in part) must begin paying principal and interest.

We will issue additional Alerts as further guidance becomes available. During this crisis, your LMC professional is available if you have questions related to the latest updates on this topic.

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