PPP Loan Forgiveness – Updated and Simplified Application Process and New and Improved Form 3508S for Small Businesses

Co-author: S. Scott Wick

The Treasury released new guidance on October 8^th, 2020, along with Form 3508S, the third version of the PPP Loan Forgiveness Application.  The new guidance allows for a more streamlined application process, and the new and improved Form 3508S caters to borrowers of PPP loans in an amount of $50,000.00 or less.

Although not constituting “automatic forgiveness,” as borrowers are still required to file Form 3508S with the applicable lender (or the equivalent form through the lender’s portal), borrowers of $50,000.00 or less of PPP funds now get relief in the form of (a) forgiveness reduction exemptions and (b) less stringent reporting requirements.

PPP Loan Forgiveness Application for Small Businesses

1. Forgiveness Reduction Exemptions

Borrowers of $50,000.00 or less of PPP funds are exempt from any reductions in forgiveness as a result of:

• Reductions in full-time-equivalent (FTE) employees, and;
• Reductions to employees’ hourly wage rates and/or annual salaries.

2. Simplified Reporting Requirements

Borrowers of PPP loans no larger than $50,000.00 will be able to file Form 3508S, rather than its predecessor, Form 3508EZ.  In comparison, Form 3508S does not require borrowers to report payroll or non-payroll numbers when applying for PPP loan forgiveness.  Form 3508S now only requires the borrower to report the following:

• Demographic information;
• SBA loan information;
• Covered period dates, and;
• Confirmation of the representations and certifications listed in the forgiveness application.

Summary of PPP Loan Forgiveness Application Options

The PPP loan forgiveness application process has recently experienced various changes, and there are several forms and requirements associated with the different methods of applying for forgiveness.  Below, we’ve provided a summary of the various application options which is intended to help borrowers make the right decision as to which application method to utilize.

1. Form 3508S – Simplified PPP Loan Forgiveness Application (Click here for Form 3508S)

• Applicable loan size: $50,000.00 or less
• Reporting information required:
  • Demographic information
  • SBA loan information
  • Covered Period dates
  • Confirmation of the required representations and certifications included in the forgiveness application
  • Supporting documentation for payroll and non-payroll costs (even though specific figures are not reported on the application form)
• Excluded calculations/accounting information:
  • Payroll costs (exact figures)
  • Mortgage interest expenses
  • Rent or lease expenses
  • Utility expenses
  • Reductions in FTEs
  • Reductions in employees’ hourly wage rates and/or annualized salaries
  • Schedule A
• Improvements and Benefits:
  • Simplified forgiveness application process for relatively smaller PPP loans
  • Shorter processing and turnaround time for lenders and SBA

2. Form 3508EZ – PPP Loan Forgiveness Application (Click here for Form 3508EZ)

• Applicable loan size: PPP loans of all sizes which meet on of the following:
  • Borrower is a self-employed individual, an independent contractor, or a sole proprietor and the borrower 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);
  • Borrower did not reduce annual salary or hourly wages of any employee by more than 25% during the Covered Period or the Alternative Payroll Covered Period and the borrower did not reduce the number of employees or the average paid hours of employees between January 1^st, 2020 and the end of the applicable Covered Period, or;
  • Borrower did not reduce hourly wages or annualized salaries of any employee by more than 25% during the Covered Period or the Alternative Payroll Covered Period and the borrower was unable to operate during the Covered Period at the same level of business activity as prior to February 15^th, 2020, due to compliance with requirement established or guidance issued between March 1^st, 2020 and December 31^st, 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.
• Reporting information required:
  • Demographic information
  • SBA loan information
  • Covered Period dates
  • Payroll Costs
  • Mortgage interest expenses
  • Rent or lease expenses
  • Utility expenses
  • Confirmation of the required representations and certifications included in the forgiveness application
  • Supporting documentation for payroll and non-payroll costs (even though specific figures are not reported on the application form)
• Excluded calculations/accounting information:
  • Reductions in FTEs
  • Reductions in employees’ hourly wages and/or annualized salaries
  • Schedule A
• Improvements and Benefits:
  • Simplified forgiveness process for borrowers that:
    • Did not reduce FTEs or hourly wages/annualized salaries, or;
    • Were negatively impacted by COVID-19 restrictions on their business operations.

3. Form 3508 – Standard PPP Loan Forgiveness Application (Click here for Form 3508)

• Applicable loan size: any and all
• Reporting information required:
  • Demographic information
  • SBA loan information
  • Covered Period dates
  • Payroll Costs
  • Mortgage interest expenses
  • Rent or lease expenses
  • Utility expenses
  • Reductions in FTEs
  • Reductions in employees’ hourly wages or annualized salaries
  • Schedule A
  • Confirmation of the required representations and certifications included in the forgiveness application
  • Supporting documentation for payroll and non-payroll costs (even though specific figures are not reported on the application form)
• Improvements and Benefits:
  • By providing the most complete set of information and reporting documentation to the lender and SBA, borrowers will be less likely to be questioned by the lender or SBA with respect to the borrowers’ reported reductions in FTEs and/or hourly wage rates/annualized salaries

This guide is intended to help borrowers determine the best path to PPP loan forgiveness.  Remember that each lender is unique in the forms and methods required in order for borrowers to submit forgiveness applications.  With each wave of guidance from the Treasury, lenders will need to adjust their application portals and processes to accommodate the PPP loan forgiveness applications.  This process may take some time, and we advise each borrower consult with its respective lender to learn the specific process, timeline, and form submission method which will apply on a case-by-case basis.

The SBA periodically releases updated FAQs.  Many borrowers find these to be helpful in answering the most common PPP-related questions.  The most recent version of the FAQs was released on October 7^th, 2020, and here is a link for your convenience: SBA FAQs - 10/7/2020.  As always, we are happy to help with any of your PPP loan forgiveness questions.