On December 22, 2020 Congress passed the stimulus bill which provides for new for Paycheck Protection Program loans and other small business relief. It is expected that new forgiveness applications will be released in the future to cover these new loans. Read more about that legislation and apply for a PPP loan here.
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If you took out a Paycheck Protection Program loan for $50,000 or less, you may be able to use a new application— Form 3508S— to obtain forgiveness. This application does not make forgiveness automatic, but it will make it easier for some borrowers to qualify for forgiveness.
The big change here is that the application does not require borrowers to calculate a reduction in forgiveness if they reduced employee salaries or wages. The SBA, in the Interim Final Rule announcing this form notes that this change is likely to have a minimal impact on overall forgiveness:
“There are approximately 3.57 million outstanding PPP loans of $50,000 or less, totaling approximately $62 billion of the $525 billion in PPP loans. Approximately 1.71 million PPP loans of $50,000 or less were made to businesses that reported having zero employees (presumably not counting the owner as an employee) or one employee. To the extent that these businesses have no employees other than the owner…they are not affected by these exemptions.”
In other words, it’s likely most borrowers using this form would qualify for full forgiveness anyway. This form makes it easier for them to apply for forgiveness, and easier for lenders to process forgiveness applications.
There are now three different PPP forgiveness application forms, each with its own set of instructions:
This forgiveness application may be used by businesses who borrowed $50,000 or less except those who with their affiliates received loans of $2 million or greater.
This form generally may be used by borrowers who were self employed with no employees as well as those who didn’t reduce salaries or wages of any employee by more than 25%. (This is generalized; borrowers must meet the specific criteria on the application and instructions to use this form. This article explains how to apply for PPP forgiveness using Form 3508EZ.)
This forgiveness application will be used by any borrower who cannot use Form 3508S or Form 3508EZ, or who chooses to fill out the full lengthier application.
As with all PPP loan forgiveness applications, you apply for forgiveness through your lender. The lender will then apply to the SBA. The SBA has just begun processing forgiveness requests. Your lender may offer an online form to capture the information in these applications.
It’s important to note that borrowers are only eligible to use this application if they borrowed less than $50,000 and together with their affiliates did not receive loans totaling $2 million or greater. The affiliate rules can be somewhat confusing but generally they come into play when there is common ownership of multiple businesses. (Franchises are a good example, but there are plenty of others.)
Also, borrowers must still calculate the amount eligible for forgiveness and keep a record of how they arrived at their calculation if the SBA asks for it in the future. Records must be kept for six years after the date the loan is forgiven or repaid in full, and borrowers must allow authorized representatives of SBA to review those files upon request.
How to document payroll
Some business owners don’t use a payroll service and simply pay themselves when they want or need funds from the business. The instructions for Form 3508S instruct borrowers they can document payroll in the following ways:
“Payroll: Documentation verifying the eligible cash compensation and non-cash benefit payments from the Covered Period or the Alternative Payroll Covered Period consisting of each of the following:
a. Bank account statements or third-party payroll service provider reports documenting the amount of cash compensation paid to employees.
b. Tax forms (or equivalent third-party payroll service provider reports) for the periods that overlap with the Covered Period or the Alternative Payroll Covered Period:
i. Payroll tax filings reported, or that will be reported, to the IRS (typically, Form 941); and
ii. State quarterly business and individual employee wage reporting and unemployment insurance tax filings reported, or that will be reported, to the relevant state.
c. Payment receipts, cancelled checks, or account statements documenting the amount of any employer contributions to employee health insurance and retirement plans that the Borrower included in the forgiveness amount.”
Overall, this new application will make it easier for a smaller group of business owners to apply for PPP forgiveness. However, many are still hoping Congress will provide for automatic forgiveness for smaller loans, which would likely make the process even easier.