The PPP loan program has been a vital lifeline for small businesses, but the program has not gone off without a hitch. The PPP loan program has been mired in setbacks and changes and the PPP forgiveness process has not bucked this trend. The forgiveness process is still developing, and banks are still waiting for further guidance from the Small Business Association (SBA) who manages the program. Many small businesses who received an early loan, and did not extend their eight-week coverage period on June 3rd, have already submitted their PPP forgiveness application adding pressure to the SBA to clarify their process. In this article, we will answer the most common questions on the PPP forgiveness application process.
PPP loan forgiveness process overview
The forgiveness process at a high level is not that complicated. You submit your PPP forgiveness application to your lender. Your lender has 60 days to approve your application in full, in part, or deny your forgiveness request. From there your lender submits your application and their decision to the SBA for review. The SBA has 90 days to review the bank’s decision.
When do I have to submit my PPP loan forgiveness application?
You can submit your application at any time before your first loan payment is due. Your first loan payment is due 10 months after your loan coverage period ends. Your loan coverage period is the span of time in which loan funds used to cover PPP eligible costs can be forgiven. Only the money spent when you submit your application is eligible for forgiveness.
What costs are eligible for forgiveness?
Payroll: All payroll costs paid or incurred during the PPP loan coverage period are eligible for forgiveness. Some payroll caps exist based on your situation. Check the SBA website for more details.
Mortgage interest payments: Interest payments, on any business mortgage obligation on real or personal property, incurred before February 15, 2020 (but not any prepayment or payment of principal).
Rent: Payments on business rent obligations on real or personal property under a lease agreement in force before February 15, 2020.
Utilities: Business utility payments for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020.
Which PPP loan forgiveness application should I use?
As of October 26, 2020, there are three PPP forgiveness forms available: 3508, 3508EZ, and 3508S.
3508S form
For a borrower with a loan of $50,000 or less who is not affiliated with an organization that received PPP Loan in the combination of $2 million or more.
The borrower does not have to:
- work out the full time equivalent (FTE) and payroll calculations on the form.
- certify that they did not reduce salaries or hourly wages by more than 25 percent for any employee during the covered period or alternative payroll covered period compared to the period between January 1, 2020 and March 31, 2020.
- certify that they 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 (other than any reductions that arose from an inability to rehire individuals who were employees on February 15, 2020, if the Borrower was unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020, and reductions in an employee’s hours that a borrower offered to restore and were refused).
- certify that they were unable to operate between February 15, 2020, and the end of the Covered Period at the same level of business activity as before February 15, 2020 due to compliance with requirements established or guidance issued between March 1, 2020 and December 31, 2020, by the Secretary of Health and Human Services, the Director of the Centers for 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 requirement related to COVID-19.
3508EZ form
For a borrower that:
is a self-employed individual, 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 l in the Borrower Application Form (SBA Form 2483).
OR
did not reduce annual salary or hourly wages of any employee by more than 25 percent during the covered period or the alternative payroll covered period) compared to the period between January 1, 2020 and March 31, 2020 (for purposes of this statement, “employees” means only those employees that did not receive wages or salary at an annualized pay rate more than $100,000, during any single period during 2019).
AND
The 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. (ignore reductions that arose from an inability to rehire individuals who were employees on February 15, 2020 if the borrower was unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020. Also ignore reductions in an employee’s hours that the borrower offered to restore, and the employee refused. See 85 FR 33004, 33007 (June 1, 2020) for more details.
OR
The borrower did not reduce annual salary or hourly wages of any employee by more than 25 percent during the covered period or the alternative payroll covered period (as defined below) compared to the period between January 1, 2020 and March 31, 2020 (for purposes of this statement, “employees” means only those employees that did not receive wages or salary at an annualized pay rate more than $100,000, during any single period during 2019).
AND
The borrower was unable to operate during the covered period at the same level of business activity as before February 15, 2020, due to compliance with requirements established or guidance issued between March 1, 2020 and December 31, 2020 by the Secretary of Health and Human Services, the Director of the Centers for 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 requirement related to COVID-19.
The borrower has to:
- work out the full time equivalent (FTE) and payroll calculations on the form.
- certify that they did not reduce salaries or hourly wages by more than 25 percent for any employee during the covered period or alternative payroll covered period compared to the period between January 1, 2020.
- certify that they 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 (other than any reductions that arose from an inability to rehire individuals who were employees on February 15, 2020, if the borrower was unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020, and reductions in an employee’s hours that a borrower offered to restore and were refused).
- certify they were unable to operate between February 15, 2020, and the end of the covered period at the same level of business activity as before February 15, 2020 due to compliance with requirements established or guidance issued between March 1, 2020 and December 31, 2020, by the Secretary of Health and Human Services, the Director of the Centers for 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 requirement related to COVID-19.
3508 form
For a borrower that does not qualify for the other two forms, the 3508 form is the longer more complicated form to fill out. The main difference between the 3508 and the 3508EZ is that the 3508 form requires the submission of a Schedule A (which is used to adjust forgiveness amounts for FTE and salary/wage reductions).
The PPP forgiveness program continues to develop and is likely to change in a significant way if a new stimulus package is passed by Congress. But for now, your lender will have the most updated process information available, and if you are an XcelHR client we can provide you with the documents and reports you will need for your application. Please reach out to your HR representative for assistance. For more information on how to become a client, please contact us or call us at (800) 776-0076.