SBA, Treasury simplify PPP forgiveness for loans of $50,000 or less
Small business owners with Paycheck Protection Program (PPP) loans of $50,000 or less now have a simpler loan forgiveness process to follow.
The U.S. Small Business Administration (SBA) and the Treasury Department announced the long-anticipated move October 8, 2020 releasing a new application form – SBA Form 3508S – that these recipients can start using immediately.
Additionally, the new interim final rule (IFR) provides guidance for lender responsibilities for PPP loans of all sizes with respect to the review of borrower documentation of eligible costs for forgiveness in excess of a borrower’s PPP loan amount.
Under the IFR, PPP borrowers of $50,000 or less are exempted from any reductions in forgiveness based on:
- Reductions in full-time-equivalent (FTE) employees; and
- Reductions in employee salary or wages.
As Congress and the Trump Administration work on another COVID-19 economic relief package – which has bogged down in disputes over its financial size and the upcoming election – the move accelerates a relatively slow start to the forgiveness process. It also comes as lawmakers squabble over forgiveness parameters and possible additional funding. In recent months, legislators have considered the potential to automatically forgive loans of a certain size.
Of the 5.2 million PPP loans approved by the SBA, about 3.5 million were for $50,000 or less, according the IFR. Those loans accounted for about $62 billion of the $525 billion in PPP loans. About 1.7 million PPP loans of $50,000 or less were made to businesses that reported having zero employees or one employee.
The SBA opened the forgiveness portal to lenders August 10 – and the agency said in late September that lenders had submitted about 96,000 forgiveness decisions for the agency’s review. That’s up from September 8, when only 56,000 determinations had been turned over to the SBA.
Detail deep dive
SBA Form 3508S can be used by PPP borrowers applying for forgiveness on PPP loans with a total loan amount of $50,000 or less, unless those borrowers, together with their affiliates, received loans totaling $2 million or more. Instructions for Form 3508S also were released.
The IFR streamlines the forgiveness process for PPP borrowers of $50,000 or less because they will not be required to perform potentially complicated FTE or salary reduction calculations. Borrowers of $50,000 or less still will have to make some certifications and provide documentation to the lender for payroll and nonpayroll costs.
A recent report by the Government Accountability Office indicates some businesses have spent 15 hours on their forgiveness forms. Lenders have spent 50 to 75 hours reviewing applications, depending on the complexity.
PPP borrowers have until 10 months after their covered period expires to apply for loan forgiveness. Lenders have 60 days after receiving a complete application to issue a decision to the SBA. The agency then has 90 days to render its own determination.
For PPP loans of all sizes, the IFR also contains guidance on lender responsibilities with respect to the review of borrower documentation of eligible costs for forgiveness in excess of a borrower’s PPP loan amount.
According to the IFR, when a borrower submits Form 3508S or the lender’s equivalent form, the lender will be required to:
- Confirm receipt of the borrower certifications contained in the form; and
- Confirm receipt of the documentation the borrower is required to submit to aid in verifying payroll and nonpayroll costs, as specified in the instructions to the form.
Borrowers are responsible for providing an accurate calculation of the loan forgiveness amount. They then must attest to the accuracy of the reported information and calculations on the loan forgiveness application. Lenders are permitted to rely on borrower representations, according to the IFR.
In addition, the IFR addresses what a lender should do if a borrower submits documentation of eligible costs that exceed the borrower’s PPP loan amount. According to the IFR, the amount of loan forgiveness that a borrower may receive cannot exceed the principal amount of the PPP loan.
Whether a borrower submits SBA Form 3508, 3508EZ, or 3508S, or a lender’s equivalent form, the lender is required to confirm receipt of the documentation the borrower is required to submit to aid in verifying payroll and nonpayroll costs. If applicable, the lender also is required to confirm the borrower’s calculations on the loan forgiveness application, up to the amount required to reach the requested forgiveness amount.
The PPP in review
Congress created the PPP as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136, signed into law March 27. The emergency loan program was designed to help business owners through the pandemic that has forced millions of businesses to close their doors for an extended period.
The CARES Act authorized Treasury to use the SBA’s 7(a) small business lending program to fund loans of up to $10 million per borrower that qualifying businesses could spend to cover payroll, mortgage interest, rent, and utilities.
PPP borrowers can qualify to have the loans forgiven if the proceeds are used to pay certain eligible costs. The program stopped accepting applications August 8, with almost $134 billion of congressionally approved funds remaining unspent.
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