SBA Simplifies PPP Forgiveness for Loans of $50,000 or Less

For small businesses that received a Paycheck Protection Program (PPP) loan of $50,000 or less, the road to forgiveness is now easier to travel.

Initially, small businesses had to fill out an 11-page application form when seeking PPP loan forgiveness. However, many complained that the form was too lengthy, complicated, and burdensome to complete. In response, the Small Business Administration (SBA) and the Department of the Treasury released a 5-page version of the form.

Then, on October 8, 2020, the SBA and the Treasury announced another simplified loan forgiveness form. This version, which consists of only 2 pages, is designed for PPP borrowers with loans of $50,000 or less.

The SBA and the Treasury recently issued an Interim Final Rule (IFR), which entails guidance for the new simplified loan forgiveness form. Moreover, the IFR exempts PPP borrowers (with loans of $50,000 or less) from certain reductions in their loan forgiveness amount.

The IFR exempts PPP borrowers (with loans of $50,000 or less) from certain reductions in their loan forgiveness amount.

No form calculations needed

When applying for PPP loan forgiveness on previous forms, PPP borrowers with loans of $50,000 or less had to include the following calculations on the form:

• Payroll and non-payroll costs
• Adjustments for full-time equivalency and salary/hourly wage reductions
• Potential forgiveness amounts
• Forgiveness amount

Those forms also come with worksheets and tables, which can be confusing and time consuming to decipher and complete.

In contrast, the new, 2-page loan forgiveness form (SBA Form 3508S) removes the calculation requirements, worksheets, and tables. Now, PPP borrowers with loans of $50,000 or less only need to complete the first page of Form 3508S (shown below).

With Form 3508S, the borrower only needs to provide basic information — including the loan forgiveness amount — and make certifications by initialing next to each statement.

The second/final page of Form 3508S has an optional Demographic Information form. According to the SBA, “Disclosure [of demographic information] is voluntary, and will have no bearing on the loan forgiveness decision.”

Additional considerations

• Although you do not have to display calculations on Form 3508S, you should do the calculations on your end and retain the records — in case the SBA ever requests them.
• PPP borrowers and their affiliates can use Form 3508S if they collectively received less than $2 million in loans. They cannot use Form 3508S if they received a combined total of $2 million or more.
• Even though Form 3508S has an expiration date of October 31, 2020, that is not the deadline to apply for loan forgiveness. The SBA has clarified that borrowers can apply for loan forgiveness “any time before the maturity date of their loan, which is two or five years from loan origination.”

Exemption from reduction in loan forgiveness amount

Borrowers must also maintain their pre-COVID-19 pandemic employee headcount, or show that they made a written good-faith effort to rehire laid-off employees or replace terminated staff.

Generally, to receive full PPP loan forgiveness the borrower cannot reduce the salary/wages of any employee by more than 25%. Borrowers must also maintain their pre-COVID-19 pandemic employee headcount, or show that they made a written good-faith effort to rehire laid-off employees or replace terminated staff. If the borrower goes against these rules, then their loan forgiveness amount may decrease.

The IFR has removed these criteria for PPP borrowers with loans of $50,000 or less. Specifically, these borrowers will not have their loan forgiveness amount reduced even if they fail to maintain their headcount or salary/wage levels.

Documentation simplified

As stated, PPP borrowers with loans of $50,000 or less will not have their loan forgiveness amount reduced even if their headcount or salary/wage levels drop. This means they do not have to produce compliance documentation regarding headcount and salary/wage levels when seeking loan forgiveness.

That said, all PPP borrowers must still submit specific documents to the lender when requesting loan forgiveness — such as bank account statements revealing payments made to employees.

Guidance for lenders

The IFR contains guidance for PPP lenders, including how to handle submitted Form 3508S. According to the IFR, when a borrower submits Form 3508S or the lender’s equivalent form, the lender must:

• Confirm receipt of the borrower’s certifications reflected in either Form 3508S or the lender’s equivalent form, and
• Confirm receipt of documentation the borrower is required to submit, to aid in the verification of payroll and non-payroll costs

The borrower is responsible for accurately computing and supplying the loan forgiveness amount, and the lender is allowed to rely on the borrower’s representations. Per the IFR, “The lender does not need to independently verify the borrower’s reported information if the borrower submits documentation supporting its request for loan forgiveness and attests that it accurately verified the payment for eligible costs.” 

With so much emphasis on borrower veracity, it’s vital that loan recipients complete Form 3508S accurately and truthfully.

The magic number: $50,000 or less

As stated in the IFR, “There were approximately 3.57 million outstanding PPP loans of $50,000 or less,” which account for $62 billion of the $525 billion in PPP loans. Many of these businesses with PPP loans of $50,000 or less have 0 employees (besides the owner) or only 1 employee.

According to the SBA, Form 3805S aims to deliver financial and administrative relief to these smaller businesses by streamlining the PPP loan forgiveness process. These businesses no longer have to include calculations on their loan forgiveness application form. And, they do not have to worry about their loan forgiveness amount being docked because of declining headcount or salary/wage levels.