Since the passing of the August 8 deadline to apply for Paycheck Protection Program loans, small businesses who made use of the program have been anxiously preparing themselves for the beginning of its next phase: loan forgiveness.
Accessing PPP funds was a relatively simple process for most businesses, but receiving the forgiveness laid out first in the CARES Act and then in the PPP Flexibility Act has proven more onerous, particularly for businesses unable to use the 3508EZ application form.
In an attempt to make forgiveness easier for PPP loan recipients, the Small Business Administration announced on October 8 the release of a new, simplified forgiveness application for PPP borrowers who received $50,000 or less. PPP Loan Forgiveness Form 3508S only requires businesses to validate that their PPP funds were used for eligible expenses and to supply evidence of having paid them in the form of bank statements, tax forms or payment receipts. No calculations on the part of loan recipients are required, but, as the SBA explains in its 3508S instructions, the Administration “may request information and documents to review those calculations as part of its loan review process.”
There are some stipulations small business owners will want to keep an eye on.
For each individual employee, the total amount of cash compensation eligible for forgiveness cannot exceed an annual salary of $100,000, as prorated for the borrower’s covered period. If a business chose an eight-week covered period, the per employee total is $15,385; for a 24-week covered period, the total is $46,154. Compensation can only be included for employees who were working for the borrower during the covered period (or alternate payroll covered period) whose principal place of residence is the U.S.
Owner compensation for a 24-week covered period is capped at $20,833 per individual or the 2.5-month equivalent of their applicable compensation in 2019, whichever is lower. The cap is $15,385 per owner in the case of an eight-week covered period.
Non-payroll costs eligible for forgiveness include mortgage payments, rent and lease obligations, and utility payments – if the agreements dictating these payments were in place before February 15, 2020. Eligible payroll costs cannot exceed 40 percent of the total forgiveness amount.
Industry reaction
According to Holly Wade, executive director of the National Federation of Independent Business Research Center, the simplified forgiveness process will have a material impact on most PPP loan recipients.
“The 3508S form will greatly benefit many PPP loan borrowers, with over two-thirds of borrowers eligible to use it,” Wade told Mortgage Professional America by email. “The SBA offering a simplified form for those PPP loans of $50,000 or less is a great step forward.”
While few are expecting a new federal COVID-19 aid package to be delivered during election season, Wade says there are other options if the government wishes to provide more support to small businesses in the coming weeks and months.
“Congress should allow borrowers with PPP loans of $150,000 or less to use the 3508S form and allow certain small business owners a second PPP loan,” she says. “The remaining $130 billion dollars left in the PPP program could go a long way in helping those small businesses still negatively impacted by the health crisis.”
While the SBA recently started processing PPP loan forgiveness applications, business owners hoping to move forward with forgiveness may have to wait a little longer.
“Some lenders are accepting PPP loan applications, but many are not,” Wade says, adding that most are “either waiting for additional action from Congress or still developing their online application portals.”
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