SBA issues updated PPP loan forgiveness application

By July 1, 2020 CARES Act
SBA issues updated PPP loan forgiveness application

On June 17, 2020, the U.S. Small Business Administration (SBA) released an updated version of the Paycheck Protection Program (PPP) loan forgiveness application (Form 3508). The latest version reflects the changes enacted by the Paycheck Protection Program Flexibility Act of 2020 (Flex Act), as well as previously issued interim final rules. In addition to the updated Form 3508, the SBA also issued a streamlined version of the application for use by borrowers meeting certain requirements.

Key takeaways

  • The application updates the length of the alternative payroll covered period available to borrowers with a bi-weekly (or more frequent) payroll cycle to 24 weeks. If borrowers elect this option, the period begins on the first day of the first pay cycle that follows loan disbursement. Borrowers who received their loan prior to June 5, 2020 can elect to use the eight-week alternative payroll period available under previous guidance.
  • The application updates the limit on forgivable amounts for compensation paid to partners in a partnership or owner-employees (including self-employed individuals) to the lesser of $20,833 or the 2 ½ month equivalent of their 2019 compensation across all businesses.
  • The updated application does not include a formal definition of “owner-employee” for the above purpose, however it does refer to “owner-employees of an S-corporation.” It is uncertain if the definition includes individuals.
  • The updated application reflects an additional exemption permitted under the FTEE reduction safe harbor. This exemption, introduced by the Flex Act, is available to borrowers who reduced their FTEEs, but can document in good faith they were unable to operate at pre-COVID-19 levels (due to compliance with government health and safety guidelines).
  • The updated application adjusts the maximum forgiveness amount to be the lesser of the following:
    1. Total eligible costs paid or incurred during the covered period, less any reductions required for the borrowers’ reductions in employees’ salaries or full-time employee equivalents (FTEEs);
    2. PPP loan amount; or
    3. Eligible payroll costs paid or incurred during the covered period divided by 60% (previously 75%).

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Borrower criteria for EZ application

The SBA, in consultation with the Department of the Treasury, also introduced a brand-new EZ application for PPP borrowers to use to apply for forgiveness. In order to obtain partial or full PPP loan forgiveness, borrowers must submit a completed SBA Form 3508 or Form 3508EZ. To be eligible to use the simplified Form 3508EZ, borrowers must meet one of the following criteria:

1. Owner with no employee

    1. Borrower is a self-employed individual, independent contractor, or sole proprietor with no employees at the time of the PPP loan application (Form 2483), and
    2. Borrower did not include any employee salaries in the computation of the average monthly payroll in Form 2483.

2. No reduction of FTEEs or salaries/wages

  1. Borrower did not reduce salary or hourly wages of any employee (who did not receive during any single period during 2019 annualized salaries/wages of more than $100,000) by more than 25% during the covered period compared to the period of January 1, 2020 and March 31, 2020, and
  2. 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.

3. No reduction of salaries/wages, but unable to return to pre-COVID-19 level of operations

  1. Borrower did not reduce annual salary or hourly wages of any employee (who did not receive during any single period during 2019 annualized salaries/wages of more than $100,000) by more than 25% during the covered period compared to the period of January 1, 2020 and March 31, 2020, and
  2. Borrower was unable to operate during the covered period at the same level of business activity as before February 15, 2020, due to compliance issued between March 1, 2020 and December 31, 2020, by the Secretary of Health & Human Services, the Director of the Centers for Disease Control & Prevention, or the Occupational Safety & Health Administration, related to the maintenance of standard of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19.

If the borrower does not meet one of the above criteria, they must complete the full Form 3508 to apply for PPP loan forgiveness.

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PPP loan forgiveness applications and instructions

Check out the updated application, streamlined application and their respective instructions by clicking on the buttons below:

Borrowers may apply for PPP loan forgiveness any time after the conclusion of their applicable covered period, but no later than the date 10 months after the last day of the applicable covered period.

If you made any FTEE or salary/wage reductions during the applicable covered period, you may want to consider delaying filing your PPP loan forgiveness application until you can restore such reductions to meet the FTEE and/or salary/wage safe harbors.

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How can Squar Milner help?

Since the introduction of the Paycheck Protection Program, Squar Milner has been at the forefront helping borrowers apply for their PPP loan and loan forgiveness.

Our experts can work with you and your business to devise strategies to maximize your loan forgiveness and answer any questions along the way. For more information on the PPP, check out our PPP webinar series, PPP FAQ, and/or our Squar Milner COVID-19 Resource Center.

Still have questions about how the Payment Protection Program applies to your specific business?

View Our PPP Services

KEY CONTACTS

Caroline Banzali
Partner, Tax Services

cbanzali@squarmilner.com

Pauline Dumas
Principal, Consulting Services

pdumas@squarmilner.com

Disclaimer: This material has been prepared for informational purposes only, and is not intended to substitute for obtaining accounting, tax, or financial advice from a professional tax planner or financial planner. All information is provided “as is,” with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information.

PPP Loan Forgiveness Series | Part IV

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