SBA Releases Updated PPP Loan Forgiveness Application Forms

On June 17, 2020, the SBA issued updates to its PPP Loan Forgiveness Application Forms (Form 3508) based on changes made by the PPPFA

Background on PPPFA

On June 5, 2020, the President signed H.R. 7020, “The Paycheck Protection Program Flexibility Act of 2020” (“PPPFA”) into law. Here are a few key features of the PPPFA:

• This legislation extends the PPP loan forgiveness “covered period” from eight weeks to 24. The 24-week period runs from the date the loan was originated and cannot extend beyond December 31, 2020. This longer extension period is crucial to many borrowers that were nearing the end of their initial eight-week timeframe and whose operations were closed or suspended under state law.
• Please note that employee compensation limits still apply, and forgiveness will continue to max out at $100,000 for annual salary. For a 24-week period, this translate to $46,153 (which the SBA recently confirmed).
• The bill defers the date a borrower can have Full-Time Equivalents (FTEs) and employee compensation at the same threshold as the borrower had on February 15, 2020 from the date of June 30, 2020 to December 31, 2020. If the borrower gets their payroll back to this level, the PPP loan forgiveness will not be reduced.
• It replaces the “75/25 rule” introduced by the SBA with a “60/40 rule;” with 60% for payroll costs and 40% for non-payroll costs. These other costs can account for a higher portion, but this is likely less of a concern due to the longer 24-week covered period.The SBA and Treasury indicated after the PPPFA was signed into law that if a business missed this 60% threshold, it could still receive partial forgiveness on its PPP loan. There had been some uncertainty if this would be permitted based on the PPPFA statute.
• Another favorable change in the PPPFA provides that the PPP loan forgiveness will not be reduced as a result of a decline in FTEs if the borrower is able to show one of the following two situations apply:
  1. An inability to rehire individuals, who were employees of the borrower as of February 15, 2020, and the inability to hire similarly qualified employees for unfilled positions by December 31, 2020.
  2. An inability to return to the same level of business activity as the business or borrower was operating at prior to February 15, 2020, due to the borrower needing to comply with requirements established by the CDC or other government agencies for the period starting on March 1, 2020 and ending on December 31, 2020. The compliance relates to maintaining standards for sanitation, social distancing, or any other worker or customer safety requirements from the Coronavirus pandemic. This exemption essentially states that by December 31, 2020, if a business or borrower is unable to open due to government orders, any drop in FTEs occurring from these restrictions will not be considered in determining a reduction in the loan forgiveness amount.

SBA Updates Loan Forgiveness Application Forms

On June 17, 2020, the SBA issued updates to its PPP Loan Forgiveness Application Forms (Form 3508) based on changes made by the PPPFA. They released the following forms and instructions:

• Form 3508 – Revised PPP Loan Forgiveness Application Form
• Form 3508 – Instructions for Revised PPP Loan Forgiveness Application Form
• Form 3508EZ – PPP Loan Application Forgiveness Form
• Form 3508EZ – Instructions for PPP Loan Forgiveness Application Form (Form 3508EZ)

One of the latest SBA’s developments is the new EZ form (Form 3508EZ). Perhaps the “EZ” is somewhat a misnomer, as the form is less complicated that the full version but is not easy and will still take time and effort to complete. A borrower can use the new Form 3508EZ if it meets one of the following three provisions, as stated in the SBA’s guidance:

• The borrower 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 the Borrower Application Form (SBA Form 2483).
• 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, during any single period during 2019, wages or salary at an annualized rate of pay in an amount more than $100,000); 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. (Borrowers can 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. Borrowers can also ignore reductions in an employee’s hours that the borrower offered to restore, and the employee refused.
• 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, during any single period during 2019, wages or salary at an annualized rate of pay in an amount more than $100,000); 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.

We will continue to provide updates about ongoing SBA developments. Please contact your Sikich advisor with any questions.

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