CARES Act: PPP Loan Forgiveness
There are now three different PPP Loan Forgiveness application forms. Each form has its own set of instructions:
This forgiveness application may be used by businesses who borrowed $50,000 or less, except those who, with their affiliates, received loans of $2 million or greater.
This form generally may be used by borrowers who were self employed with no employees as well as those who didn’t reduce salaries or wages of any employee by more than 25%. (This is generalized; borrowers must meet the specific criteria on the application and instructions to use this form. (This article explains how to apply for PPP forgiveness using Form 3508EZ.)
This forgiveness application is for any borrower who cannot use Form 3508S or Form 3508EZ, or who chooses to fill out the full, lengthier application.
As with all PPP loan forgiveness applications, you apply for forgiveness through your lender.
The lender will then apply to the SBA. The SBA has just begun processing forgiveness requests. Your lender may offer an online form to capture the information in these applications.
It’s important to note that borrowers are only eligible to use the new application if they borrowed less than $50,000 and together with their affiliates did not receive loans totaling $2 million or greater. The affiliate rules can be somewhat confusing, but generally they come into play when there is common ownership of multiple businesses. (Franchises are a good example, but there are plenty of others.)
Also, borrowers must still calculate the amount eligible for forgiveness and keep a record of how they arrived at their calculation if the SBA asks for it in the future. Records must be kept for six years after the date the loan is forgiven or repaid in full, and borrowers must allow authorized representatives of SBA to review those files upon request.
How to document payroll
Some business owners don’t use a payroll service and simply pay themselves when they want or need funds from the business.
The instructions for Form 3508S instruct borrowers they can document payroll in the following ways:
“Payroll: Documentation verifying the eligible cash compensation and non-cash benefit payments from the Covered Period or the Alternative Payroll Covered Period consisting of each of the following:
a. Bank account statements or third-party payroll service provider reports documenting the amount of cash compensation paid to employees.
b. Tax forms (or equivalent third-party payroll service provider reports) for the periods that overlap with the Covered Period or the Alternative Payroll Covered Period:
i. Payroll tax filings reported, or that will be reported, to the IRS (typically, Form 941); and
ii. State quarterly business and individual employee wage reporting and unemployment insurance tax filings reported, or that will be reported, to the relevant state.
c. Payment receipts, cancelled checks, or account statements documenting the amount of any employer contributions to employee health insurance and retirement plans that the Borrower included in the forgiveness amount.”
Overall, this new application will make it easier for a smaller group of business owners to apply for PPP forgiveness. However, many are still hoping Congress will provide for automatic forgiveness for smaller loans, which would likely make the process even easier.