Paycheck Protection Program (PPP) Loan Forgiveness Frequently Asked Questions
Updated: August 3, 2020
The following summarizes many of the important points to consider when applying for forgiveness for your PPP loan:
Reminders as to previous/recent PPP changes impacting Forgiveness
- At least 60% of the PPP loan proceeds must be used for payroll costs (Previously 75%). Up to 40% may be used for eligible non-payroll purposes as described below.
- The “Covered Period” to use the loan proceeds in is now 24 weeks from the date of loan funds being disbursed (previously 8 weeks). Borrower may still elect to use the 8-week period if their PPP loan was made before June 5, 2020. Additionally, if the borrower has used the loan proceeds before their Covered Period has ended, they may still proceed with application for forgiveness at that time.
- The “Alternative Payroll Covered Period” remains an option for the Borrower to calculate eligible payroll costs if Borrower has weekly or bi-weekly payroll (non-payroll costs must be based off of the “Covered Period” above). Under this option, the time period begins on the first day of the first payroll period following when the loan funds were disbursed and ends after 24 weeks.
Update and Changes to what amounts are eligible for Forgiveness
- Payroll costs paid or incurred including salary, wages, and tips, up to $100,000 of annualized pay per employee (for 24 weeks a maximum of $46,154 per individual or for 8 weeks a maximum of $15,385 per individual). This applies to both non-owner employees as well as owner-employees (for self-employed see below). Applicable only to non-owner employees, payroll may also include employer paid benefits including health care benefits, retirement contributions, and state payroll taxes.
- For Self-Employed, Owner-Employees, or General Partners, up to 2.5 months’ of 2019 Net Profit. This is calculated by taking the 2019 Net Profit divided by 12 then multiplied by 2.5. Eligible Owner Compensation is capped at $20,833 under this calculation based off of a 24-week Covered Period. Borrowers that elect to use an 8-week covered period would take 8/52nds of the 2019 Net Profit capped at $15,385.
- Paid or incurred Interest on mortgage obligations on real or personal property of business. Obligation must have been in place before 2/15/2020.
- Paid or incurred Rent under lease agreements on real or personal property of business. Rent or lease agreement must have been in place before 2/15/2020.
- Paid or incurred Utilities of business (includes electricity, gas, water, telephone, transportation, or internet access). Service must have been in place before 2/15/2020.
Changes to the PPP Loan Forgiveness Application Forms
- SBA developed a new PPP Loan Forgiveness Application (Form 3508EZ) for borrowers that meet specific requirements. This form is only three pages, of which only one page involves calculations. Separate Instructions are also provided for the form. Supporting documents as detailed in the instructions are still required.
- For borrowers that do not meet the requirements for the EZ form, the standard Form 3508 is revised to reflect the changes to the overall PPP program. The application form itself is five pages. Separate Instructions are also provided for the form.
Who can use the streamlined SBA Form 3508EZ?
For those borrowers that meet any one of the below three criteria, the 3508EZ form should be used:
- Borrower is self-employed, independent contractor, or sole proprietor who had no employees at the time of the PPP loan application and did not include any employee salaries in the computation of average monthly payroll in the loan application.
- Borrower A) Did not reduce the annual salary or hourly wages of any employee by more than 25% during the “Covered Period” or the “Alternative Payroll Covered Period” (as selected by the Borrower) compared to the period between 1/1/2020 and 3/31/2020. For purposes of this statement, “employees” means only those employees that did not receive, during any one single pay period during 2019, wages or salary that when annualized would not exceed $100,000; AND, B) Did not reduce the number of employees or the average paid hours of employees between 1/1/2020 and the end of the “Covered Period” (Ignore any reductions that arose from an inability to rehire individuals who were employees on 2/15/2020 if the Borrower was unable to hire similarly qualified employees for unfilled positions by 12/31/2020. Also ignore reductions in an employee’s hours that the Borrower offered to restore, and the employee refused. If either of these apply, need to properly document).
- Borrower A) Same as 2.A above; AND, B) Was unable to operate during the Covered Period at the same level of business activity as before 2/15/2020, due to being directly or indirectly impacted by compliance with requirements established or guidance issued between 3/1/2020 and 12/31/2020 by the Secretary of Health and Human Services, the Director of the Centers of Disease Control and Prevention, or the Occupational Safety and Health Administration, related to the maintenance of standards of sanitation, social distancing, or any other work or customer safety requirements related to COVID-19.
Our understanding as to meeting the requirements for 2.A and 3.A above for “annual salary and hourly wages” is that this refers to the hourly pay rate or annualized salary pay rate rather than actual dollars. The requirements of 2.A and 3.A would still be met even if employees were laid off or hours cut so if the rate of pay was not reduced by more than 25%.
Similarly, our understanding as to 2.B is that the number of employees is referring to the particular points in time. Under this, as long as you had the same number of employees by either the end of the Covered Period or by 12/31/2020 as you did on 1/1/2020 you will meet the test. Additionally, if you had unsuccessfully attempted to rehire an employee or to hire a similarly qualified employee, this will not count against you in this calculation.
For 3.B, this will be significant for many borrowers that were not deemed essential or were otherwise not able to operate at the same level of activity (directly or indirectly impacted) in meeting the requirements of one of the above government organizations. Based on our understanding discussed above for 2.A and 3.A and assuming no reductions of greater than 25% in the pay rate for an employee, most restaurants, retail businesses, and similar would fall under this option to use the EZ form.
- Continue to monitor your use of proceeds, employee numbers, reductions to salaries and wages is applicable. Based on the above, determine if you will be able to use the Form 3508EZ or if you will need to use the standard Form 3508. Review the instructions and form that will be used.
- Regardless of the form used, documentation will be much less if the use of loan proceeds can be fully allocated to payroll rather than allocating a portion to eligible non-payroll uses. Consider extending beyond the 8-week Covered Period option to allow full allocation to payroll. In this case, only include on the application the amounts used during the Covered Period towards payroll (that should match or exceed the PPP loan amount) and do not include any non-payroll items on the application.
- Continue to gather supporting documentation as detailed in the forgiveness application instructions. A number of the documents will need to be submitted as part of the forgiveness application process with others needing to be retained by the Borrower (including those items submitted to FBO) in the event of a future audit.
- If you will need to use the standard Form 3508 and do not meet the requirements for full forgiveness, please note that forgiveness is not an “all or nothing” and the actual amount of forgiveness will be reduced proportionally based on the calculations provided in the Application.
It is believed that the majority of Borrowers will now be eligible to use the streamlined Form 3508EZ. This form will greatly assist in the time required to complete and to then review the application. Documentation will be the key piece to this application process. As mentioned above, when possible to allow for full allocation towards payroll rather than including non-payroll items, this will also further reduce the application burden.
Though expected to be less common, some borrowers may find that they need to complete the standard Form 3508. Documentation is similar to the Form 3508EZ, but there will be more time involved with calculating the eligible forgiveness amount.
Regardless of the form used, you are encouraged to work with your loan officer with any questions or concerns you may have related to your application. Please carefully review the instructions for completing the form as well as requirements on providing/retaining documentation. When a fully completed application including the necessary supporting documentation is provided to FBO, it will be possible for FBO to complete the required lender review in a very timely manner to then submit to SBA to request forgiveness.