PPP Loan Forgiveness Update

There are three different forms that need to be submitted to the lenders, along with other documentations and supports the lenders may require, in order to apply for forgiveness of PPP loan amount.  Note that application for PPP loan forgiveness is made with the lenders, not the SBA.  Before discussing these forms, let’s first understand when the borrowers need to apply.

Deadline

Loan proceeds must be spent within the covered period.  Covered period was extended from 8-week period to 24 week period immediately following disbursement of the loan or by December 31, 2020, whichever is earlier.  If you received the loan prior to June 5, 2020, you may choose the 8-week period covered period.  In other words, unless you choose to use 8-week period covered period, the covered period ends earlier of 24 weeks from the loan disbursement date or December 31, 2020.

Additionally, all PPP loan borrowers have additional 10 months after the last day of each borrower’s loan covered period.   SBA, in its Q&A published in August 4, 2020, provided that as long as a borrower submits its loan forgiveness application within 10 months of the completion of the covered period, the borrower is not required to make any payments until the forgiveness amount is remitted to the lender by SBA.

Example 1:

Assume that Company X received PPP loan on May 1, 2020.  The covered period for this loan ended on October 16, 2020 (24 weeks after receiving the loan), unless Company X elects to use a shorter covered period.  Then the application for the forgiveness must be filed with the lender before August 15, 2021.

Example 2:

Assume that Company X received PPP loan on May 1, 2020 and chooses to use 8-week period covered period.  The covered period for this loan ended on June 26, 2020.  Then the application for forgiveness must be filed with the lender before April 26, 2021.

Applicable Forms

There are three different forms borrowers can use and which form needs to be used is depended on the size of the loan and borrowers’ eligibility.

• Form 3508S (Short Form): A borrow may use Form 3508S only if the total PPP loan amount received was $50,000 or less.  However, a borrow that, together with its affiliates received PPP loan totaling $2 million or more may not use this short form.  This 2-page form is very easy to complete, and it is designed to provide forgiveness mainly based on borrowers’ representations and certifications.  Contact your lender before completing the form as they may require additional documentations and supports.

• Form 3508 EZ (EZ Form): A borrower may use the Form 3808EZ if the borrower meets one of the three qualifications listed below.  This 3-page form is relatively less complex to complete then Form 3508 (Long Form) because borrower does not need to compute the complex fulltime equivalent and salary/hourly wage reductions.   Contact your lender before completing the form as they may require additional documentations and supports.  The three qualifications are:
  1. Borrower is a self-employed individual, independent contractor, or sole proprietor with no employees at the time of the PPP loan application;
  2. Borrower did not reduce annual salary or hourly wages of any employee by more than 25% during the covered period compared to the Q1 of 2020, AND the borrower 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
  3. Borrower did not reduce annual salary or hourly wages of any employee by more than 25% during the covered period compared to the Q1 of 2020, AND the borrower was unable to operate during the covered period at the same level of business activity due to compliance with requirements established or guidance issued by federal, state and local governments related to COVID-19.

• Form 3508 (Long Form): A borrower who is not eligible to use forms 3508S or 3508EZ is required to use the Form 3508.  This 11-page form requires computation of fulltime equivalent and salary/hourly wage reductions for each employee and require detail disclosures and supporting worksheet.  We recommend that borrowers who are required to use this form set aside adequate resources or seek for professional assistance and commence the related work early to timely submission for application.