The Small Business Administration (SBA) has issued the first major source of guidance surrounding Paycheck Protection Program (PPP) loan forgiveness via their Paycheck Protection Program Loan Forgiveness Application. The PPP provides funds to eligible borrowers in the form of loans, which are up to 100% forgivable if all requirements are met. With a limited amount of funds, and loans being processed on a first-come, first-served basis, borrowers rushed to apply. Many PPP loans had been approved and disbursed before the SBA issued any guidance on borrowers’ certifications, the safe harbor deadlines, or forgiveness. In the past week, there has been some much-needed clarification on both a safe harbor for the good-faith certification and now on the forgiveness calculation.
Loan forgiveness continues to remain the optimal scenario for many businesses as the economy re-opens. The SBA’s Loan Forgiveness Application includes detailed instructions for borrowers, including how to calculate their PPP loan forgiveness amount and which supporting documents are required to be submitted with the forgiveness application. Such information clarifies the PPP program, allowing businesses to make more informed decisions with their costs as they navigate the new business environment and spend their PPP funds.
Some notes about the PPP Loan Forgiveness Application
In order to request forgiveness of a PPP loan, borrowers must file SBA Form 3508 (The Paycheck Protection Program Loan Forgiveness Application cited above) with their lender.
SBA Form 3508 is made up of four main parts:
- PPP Loan Forgiveness Calculation Form
- PPP Schedule A
- PPP Schedule A Worksheet
- PPP Borrower Demographic Information Form (Optional.)
Regarding PPP Loans in Excess of $2 Million
The SBA Form 3508 requires the borrower alert the SBA by checking the appropriate box on the forgiveness application if, together with their affiliates, they received PPP loan proceeds in excess of $2 million. As noted in the PPP Loans Frequently Asked Questions file
The Four Forgivable Business Cost Categories
- Payroll costs (The SBA requires at least 75% of the forgiven amount be used for payroll.)
- Business mortgage interest payments
- Business rent or lease payments
- Business utility payments
The Loan Forgiveness Application provides instructions and some guidance relating to requirements surrounding these four forgivable costs, which unless specified otherwise, must be incurred during the “covered period”. (The covered period is the eight week period following the disbursement of the PPP loan.) One significant change expressed in the Loan Forgiveness Application was the ability for the borrower to elect an “alternative payroll covered period” to allow for greater ease in payroll administration and forgiveness.
Although the Loan Forgiveness Application provides some much needed guidance, there are still several outstanding questions, and many anticipate there will be further clarification and guidance from the SBA regarding forgiveness in the near future.
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