PPP Loan Forgiveness Made Simple

PPP Loan Forgiveness Made Simple

Today’s economic climate brings new information for the small business community with the important aspect of navigating the loan forgiveness application for the Small Business Administration (SBA) Paycheck Protection Program (PPP). Most recently, the SBA and Treasury announced a simple loan application forgiveness for loans of $50,000 or less.

With the PPP closing on August 8th (until we hear more) aligning criteria with eligible expenses is key for small business owners. SBA’s new PPP loan forgiveness applications continue to make it easier for small businesses and other PPP borrowers to qualify for full loan forgiveness.

Developed in consultation with Department of the Treasury, the Full Forgiveness Application and EZ Forgiveness Application, released on June 16th, also offers guidance for forgiveness of those PPP loans Both entities also released a Frequently Asked Questions (FAQs) document, all of which we’ve simplified for you here.

SBA’s guidance is broad and does not include lender specifics, which could require less or more documentation. Also, all forgiveness is for items not already covered by an Economic Injury Disaster Loan (EIDL)

PPP Loan Forgiveness Application Form 3508S

  • The newest PPP Loan Forgiveness Application Form 3508S and instructions key element is that a borrower disregards changes in employee headcounts, as well as changes in salaries or wages.
  • Of course, to qualify the PPP loan must be $50,000 or less.
  • After some basic questions, it asks to qualify the 60% in payroll as the other forgiveness loans, as well as the owner payroll cap.

Full Forgiveness Loan Application

  • The latest instructions offer guidance on how to calculate employee and owner compensation.
  • The covered period is for the new 24-week (6 months) created by the Paycheck Protection Flexibility Act.
  • There is a reduction of the proportion of proceeds that must be spent on payroll costs to 60%, from 75%.
  • There is an establishment of a safe harbor for businesses that have been unable to return to the level of business activity they had before the COVID-19 pandemic. This is primarily due to compliance with health and safety guidelines for slowing the spread of the virus.
  • Health insurance costs for S corporation owners cannot be included when calculating payroll costs. However, retirement costs for S corporation owners are eligible costs.
  • Safe harbors for excluding salary and hourly wage reductions and reductions in the number of FTEs from loan forgiveness reductions can be applied as of the date the forgiveness loan application is submitted. Borrowers do not have to wait until Dec. 31 to apply for forgiveness to use the safe harbors.
  • Borrowers that received loans before June 5 can choose between using the original eight-week covered period or the new 24-week covered period.

EZ Forgiveness Loan Application

  • The instructions requires fewer calculations and less documentation than the full application.
  • Applies to self-employed and have no employees.
  • Covers companies that did not reduce the salaries, or wages, of their employees by more than 25%. And, did not reduce the number or hours of their employees
  • Considers experienced reductions in business activity because of health directives related to COVID-19. And did not reduce the salaries or wages of their employees by more than 25%

Highlights for Loan Application Forgiveness FAQs

  • Outlines the forgiveness for loan application process, including which borrowers may be eligible to use the “EZ” form.
  • Clarifies when borrowers are expected to make payments on unforgiven loan amounts and accrued interest.
  • Discusses when paid and incurred payroll and nonpayroll costs may be included in a borrower’s forgiveness calculation.
  • Details what types of payroll expenses are eligible for forgiveness. This includes questions on commissions and bonuses, group healthcare benefits, and retirement benefits.
  • Directs how to calculate the amount of owner compensation based on different types of businesses. These are C-Corporations, S-Corporations, Self-employed Schedule C or Schedule F filers, General Partners, LLC owners.
  • Identifies which types of nonpayroll expenses are eligible for forgiveness. It includes questions on interest on unsecured credit. Also, recently renewed or refinanced leases and mortgages, and utility payments.
  • Tells how to calculate loan forgiveness reductions for reductions in salary or full-time employee (FTE)

The Coronavirus (COVID-19) pandemic impacts all aspects of our economy, much of which are small businesses. Many have turned to the SBA’s disaster programs including the PPP and EIDL.

For business advisory on accessing capital, completing a loan application and accounting services for your small business, get in touch for a free consultation.

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