Small businesses with Paycheck Protection Program (PPP) loans of $50,000 or less received welcome news from the Small Business Administration (SBA) and Treasury Department regarding PPP loan forgiveness. The Interim Final Rule (IFR) eases restrictions for receiving total loan forgiveness and simplifies the application process.
Total Loan Forgiveness
The new rules provide small business borrowers with total loan forgiveness, even if they reduced headcount or wages once they received their loans, as long as they can provide payroll documentation and records. Under the PPP loan program, borrowers were required to spend the money on qualified expenses, such as payroll (at least 60% of the total loan amount), mortgage interest, rent and utilities. If an employer reduced salaries by more than 25%, the salary reduction in excess of 25% would not be forgiven. In issuing the new rule, the SBA is easing the burden for borrowers who mostly are sole proprietors, independent contractors or employers with one employee. The SBA’s rationale is that these businesses would not be affected by the loan forgiveness reduction requirements because (1) the borrowers did not reduce FTE employees, employee salaries or wages, or (2) the borrowers would qualify for one of the existing exemptions from loan forgiveness amount reductions the SBA considers these exemptions to be de minimis.
Simplified Loan Forgiveness Application
In issuing the guidance, the SBA has also streamlined the new loan forgiveness application, Form 3508S to two pages, relieving the burden on small business owners who may be struggling to keep their business afloat. The moves also provide administrative relief to lenders that process the loans. Many lenders have been waiting for Congress to provide greater clarity before processing loan applications.
The IFR included guidance for lenders regarding borrower documentation of eligible costs for forgiveness that is greater than the borrower’s loan amount. Specifically, when a borrower submits Form 3508S, the lender will be required to confirm receipt of the borrower’s certification as well as receipt of the documentation that verifies payroll and non-payroll costs. Some lender groups, including the Consumer Bankers Association, have been advocating that all loans under $150,000 be automatically discharged. They cite the complexity of the forgiveness rules as they are currently written.
Loans to small business owners make up roughly 70 percent of the PPP program, and the SBA has provided 5.2 million loans worth $525 billion to small businesses. Yet the SBA has been slow to act on loan forgiveness applications; the agency didn’t send any approvals until Oct. 2, 2020.
Goldin Peiser & Peiser will continue to monitor all matters related to PPP loan forgiveness to provide you with updates. Our CARE team can help ensure you are receiving the maximum amount of loan forgiveness by complying with program requirements.
If you have questions about this SBA guidance or other PPP loan matters, please contact Ann Bond at 972-818-5300.
COVID-19 Resources and Planning Services
Need timely updates and helpful links to COVID-19 disaster relief programs? Visit GPP’s COVID-19 Business Assistance and Resource Center. To learn the best path forward for your business during this challenging time, our COVID-19 Business Advisory and Planning Services Group is ready to assist.
For immediate questions, email CARETEAM@GPPcpa.com
Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.