SBA Releases New PPP Loan Forgiveness Forms and Instructions
This past week, new PPP forgiveness applications were released by the SBA to simplify the process and mirror the language of the PPP Flexibility Act that was signed into law earlier this month. We're here to clarify some of the changes to the application and shed light on a newly updated interim final rule.
PPP Loan EZ Forgiveness Application and Other Highlights
Borrowers can use the EZ Forgiveness application if they can certify any one of the following:
- They are self employed and have no employees.
- They did not reduce salaries or hourly wages of "employees" below 25% during the chosen covered period compared to Q1 of 2020 ( "employees" meaning those who made no more than $100,000 annualized during 2019) and did not reduce the number of employees or average paid hours, during the chosen covered period compared to January 1st and February 15th, 2020. Documentation of good faith attempts at rehiring as previously outlined apply.
- They did not reduce salaries or hourly wages below 25% and they were unable to restore employee headcount based on mandates from HHS, CDC or OSHA for social distancing and sanitation protocols.
Borrowers who received loans prior to June 5th, can choose either an 8 week or 24-week forgiveness period. Borrowers whose loans were issued after June 5th, are only eligible for the 24- week forgiveness period.
The safe harbors for forgiveness previously set at June 30th, for restoration of FTE and salary reductions are now set at December 31st, 2020, or the date the application for forgiveness is submitted, whichever comes first.
Health insurance Costs for S Corp Owners cannot be included in the payroll costs for forgiveness, but retirement benefit costs for these same owners is includable.
Owner compensation replacement calculations were given as $15,385 for the 8-week covered period and $20,833 for the 24-week covered period. This is structured to prevent owners from paying themselves a windfall over restoring employee salaries. Individual employee salaries are allowed up to $15,385 for the 8-week covered period and $46,154 for the 24-week covered period.
SBA Issues Updated Interim Final Rule
In addition to the application changes the SBA issued an updated interim final rule (IFR). Here are a few important clarifications:
- A borrower will meet the pay restoration requirement if the hourly rate of an employee remains the same as during the first quarter of 2020. For example, if an employee's hours are cut in half from 40 hours per week during the look-back period, to 20 hours per week in the covered period, and the same hourly rate was paid during both periods, the borrower will not be penalized.
- Loans made after June 5th will have a 5-year maturity term. Loans executed previously can be renegotiated with the lender.
- No payments will need to be made on the loan prior to submission of the application for forgiveness, and up to 10 months after the end of the chosen covered period.
- Lenders have the responsibility to notify borrowers of the dates of deferral as well as when the first payment is due. Interest will accrue in the deferral period.
- The SBA clarified that the new 60/40 split of use of funds on payroll and non-payroll covered expenses is not subject to a cliff, and will be subject to the proportional forgiveness calculations previously outlined.
Resources For PPP Loan Applicants
The full forgiveness application Form 3508 can be found here.
With corresponding Form 3508 instructions here.
Additionally, EZ (or simplified) application Form 3508EZ can be found here.
With corresponding Form 3508EZ instructions here.
PPP Loan Application Deadline Approaching
The PPP loan application is still open until June 30th for those who have not yet applied. EDIL loan applications were previously closed and are now open again for processing. These loans have some flexibility for use, including coverage for working capital and inventory, however they are not forgivable.
Topics: COVID-19 Updates