The SBA Issues a Simplified PPP Loan-Forgiveness Application

When the novel Coronavirus struck the United States, the government took some action to protect workers and businesses. One of the most significant steps they took was the institution of the Paycheck Protection Program (PPP). The initiative offered PPP loans to small businesses that were partially or totally forgivable based upon the specific requirement that the borrower used it for its specific purpose: to maintain employees on their payroll and to pay for specific types of required, existing expenses, including utility bills, rent, and mortgage interest. 

In order to have the loans forgiven, each borrower was required to submit a request to their lender and the lender was required to respond with their decision within 60 days of the application.

The Complexities of PPP Loan Forgiveness

Though this seemed fairly straightforward, it turned out not to be. To have their loan forgiven, the borrower needed to provide verification in the form of documents proving their payments, the number of full-time-equivalent employees on their payroll, and what they were paying for them. They also needed to certify the validity of their documents and statements and that the loan amount they were seeking forgiveness for were used for those expenses.

The basics are understandable, but the guidance that the Internal Revenue Service (IRS) and Small Business Administration (SBA) provided was complicated and confusing. New rules were published on a weekly basis, and the published forgiveness application which accompanied the loan documents was complicated and challenging to complete, requiring significant calculations without providing worksheets to guide applicants through the process.

The PPP Flexibility Act

After the inevitable outcry, a new law was passed. The Paycheck Protection Program Flexibility Act was aimed at clearing up the confusion, requiring the SBA to make the forgiveness application much more straightforward and user-friendly. The end result was that the original application, SBA Form 3508, was replaced by SBA Form 3508EZ. The new form comes with instructions and is specifically for use by:

• Sole proprietors with no employees
• Most borrowers that do have employees and who met the following criteria during the PPP’s prescribed time period:
• Maintained employee’s hourly wages/annual salary without decreasing it more than 25%
• Maintained the same number of employees or the average number of paid employee hours as before the pandemic struck
• Forced to shut down or diminish their business activity during the PPP’s outlined period from what had been the norm prior to February 15^th, 2020 as a result of adhering to either guidance or requirements that came from the director of the Centers for Disease Control and Prevention, the Secretary of Health and Human Services, or the Occupational Safety and Health Administration.

Simplified Forgiveness for Loans of $50,000 or Less

After 3508EZ was published, another simplified application specifically for those that had received a loan of $50,000 or less was released. Called SBA Form 3508S, it was released along with its instructions on October 5^th. Those businesses that qualify to use this form (or their lender’s version of it) and who were concerned that they face reductions in the forgiveness of the amount they borrowed based upon having to reduce employee salaries or wages or cut the number of FTE employees have been exempted from the CARES Act requirements. They also do not need to “show their work” in calculating the amount of loan forgiveness they apply for, though the Small Business Association can request that they provide documentation for their use as they review the application.

What’s Next for PPP Borrowers? 

Borrowers who use SBA Form 3508S are required to keep all records and documents that they used in support of the original loan application, to support their loan-forgiveness application, and to prove their eligibility for both the PPP loan and that they met the loan requirements, for six years from the time when the loan is either forgiven or repaid.

Those who received loans of $2 million or more are required to use either the original Form 3508 and its instructions, or if they meet the eligibility requirements they can use SBA Form 3508EZ (or their lender’s version).

Businesses that took advantage of the PPP loan must have their application for loan forgiveness to their lender or the lender servicing their loan within ten months of the loan coverage period ending. 

These changes should be good news for anybody that applied for and received a PPP loan. If you need help understanding how they apply to you or in completing the paperwork for the loan forgiveness, we recommend contacting your business accounting professional.

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All Articles by Gordon McNamee, CPA