New PPP Forgiveness Guidance and Applications

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The June 5, 2020 Paycheck Protection Program Flexibility Act (Flexibility Act) changed key elements of the Paycheck Protection Program (PPP). Consequently, the SBA amended its PPP rules and released two new PPP loan forgiveness applications.

PPP Rule Amendments

The SBA’s interim rules were amended changing forgiveness periods from eight weeks to 24 weeks and from June 30, 2020, to December 31, 2020. Loans that originated before June 5 may choose to utilize the new 24-week covered period or the previous eight-week period. Loans that originate on or after June 5 must use the 24-week covered period.

8-Week Period Election

If the employer elects the eight-week covered period, the cap on cash compensation is the same as in original Form 3508. For employees other than owner-employees or self-employed individuals/general partners, the cash compensation cap is $15,385, and cash compensation to owner-employees or self-employed individuals/general partners is capped at the lesser of eight weeks’ worth of 2019 compensation or $15,385.

24-Week Period Election

If a 24-week covered period is used, for employees other than owner-employees or self-employed individuals/general partners, the cash compensation cap is $46,154, which is $100,000 prorated for 24 weeks. However, cash compensation to owner-employees or self-employed individuals/general partners is capped at the lesser of 2.5 months’ worth of 2019 compensation or $20,833 (instead of the full 24-week covered period).

EZ Forgiveness Application

The SBA released 2 new application forms depending on the circumstances of the borrower. The new “EZ” Form 3508EZ is a simplified version of the previous application. Borrowers must list amounts paid for payroll costs, mortgage interest, rent, and utilities.  Borrowers are still required to provide documentation of the eligible costs and documentation that the leases, utilities, and mortgages were all in effect on February 15.

The EZ form may be used by the following borrowers:

  1. self-employed individuals, independent contractors, or sole proprietors 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 loan application; or

  2. borrowers that did not reduce annual salary or hourly wages of any employee by more than 25 percent (excluding those that make more than $100,000 annually) during the covered period compared to the period between January 1, 2020, and March 31, 2020, and either

    1. 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; or

    2. were unable to operate during the covered period at the same level of business activity as before February 15, 2020, due to compliance with government issued requirements or guidance between March 1, 2020, and December 31, 2020, related to the maintenance of standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19.

For purposes of the second category of borrowers with employees, a reduction in employees may be ignored under conditions outlined in the SBA’s interim final rule on revisions to first interim final rule.

Standard Forgiveness Application

Borrowers who are ineligible to use the EZ Form must apply for forgiveness using the new Form 3508. The major difference between the 2 forms is that the Form 3508 contains forgiveness reductions due to decreases in compensation compared to the first three months of 2020, or decreases in full time employees compared to one of the permitted reference periods.

Form 3508 contains three safe harbors for borrowers who are unable to return to their pre-COVID FTEs:

  1. the borrower did not reduce the number of employees or the average paid hours of its employees between January 1, 2020, and the end of the covered period,

  2. the borrower was 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 government issued requirements or guidance issued between March 1, 2020, and December 31, 2020 related to the maintenance of standards for sanitation, social distancing, and any other worker or customer safety requirement related to COVID-19, and

  3. borrower restored reductions in FTE by December 31, 2020 (June 30, 2020, prior to the Flexibility Act).

In calculating the number of FTEs during the covered period, the form also implements the rehire exceptions outlined above.
 
PPP forgiveness is the goal for all businesses, but unfortunately there is not a one size fits all solution when figuring out the application and calculations. Please work closely with your professional advisors when completing the application and don’t hesitate to reach out to the firm if we can be of assistance.