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PPP Loan Forgiveness Application, After the Payroll Protection Program Flexibility Act of 2020

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This Article is based on information available as of June 18, 2020.  The information is subject to change as additional guidance is provided. 


In mid-May the SBA published the PPP Loan Forgiveness Application (SBA Form 3508).  Following the Paycheck Protection Program Flexibility Act of 2020 becoming law, the SBA published two new PPP Loan Forgiveness Applications, SBA Form 3508 (06/20), which can be downloaded here, and SBA Form 3508EZ (06/20), which can be downloaded here.  Instructions for SBA Form 3508 are located here, and instructions for SBA Form 3508EZ are located here.

The two steps borrowers need to take to ensure that a PPP Loan is forgiven in full are to spend the PPP Loan proceeds only on approved costs and scrupulously document their spending during the Covered Period or Alternate Payroll Covered Period (each defined below).  The basic requirements for PPP Loan forgiveness are:

    1. At least 60%[1] of the loan proceeds must be spent on eligible payroll costs;
    2. The company must maintain the average number of full-time equivalent employees (“FTEEs”) for each pay period falling within the Covered Period (at the same level experienced by the employer during the FTEE Measuring Period); and
    3. The company must maintain employee salaries for employees making under $100,000 annually at a level equal to 75% or greater than their previous salary, but for the employees with an annual salary of over $100,000, salaries can be reduced to $100,000.

SBA Form 3508 is made up of several parts including (1) a Loan Forgiveness Calculation Form, (2) a PPP Schedule A, (3) a PPP Schedule A Worksheet, (4) a list of documents and information that must be submitted with the completed Application and a list of documents that must be maintained by the Borrower for a period of 6-years, and (5) a PPP Borrower Demographic Information Form.

SBA Form 3508EZ is a shorter-simplified application that can be used, if the Borrower meets any one of the following three criteria:

    1. The Borrower is a self-employed individual, independent contractor or sole proprietor who did not have any employees; or
    2. The Borrower did not reduce the annual salary or hourly wages of any employees earning on an annualized basing $100,000 or less, by more than 25% during the Covered Period or Alternative Payroll Covered Period 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 (subject to applicable FTEE exemptions); or
    3. The Borrower did not reduce the annual salary or hourly wages of any employees earning on an annualized basing $100,000 or less, by more than 25% during the Covered Period or Alternative Payroll Covered Period and the Borrower was unable to operate during the Covered Period at the same level of business activity as before February 15, 2020 due to compliance with requirements related to the maintenance of standards of sanitation, social distancing, or other work or customer safety requirement related to COVID-19.

Covered Period.  For each Form, the Borrower must identify the “Covered Period”, which is defined as either (1) the 24-week (168-day) period beginning on the PPP Loan Disbursement Date, or (2) if the Borrower received its PPP loan before June 5, 2020, the Borrower may elect to use an eight-week (56-day) Covered Period. For example, if the Borrower is using a 24-week Covered Period and received its PPP loan proceeds on Monday, April 20, the first day of the Covered Period is April 20 and the last day of the Covered Period is Sunday, October 4.  In no event may the Covered Period extend beyond December 31, 2020.  Alternatively, for administrative convenience, Borrowers with a biweekly (or more frequent) payroll schedule may elect to calculate eligible payroll costs using an “Alternate Payroll Covered Period, being the 24-week (168-day) period (or for loans received before June 5, 2020 at the election of the Borrower, the eight-week (56-day) period) that begins on the first day of their first pay period following their PPP Loan Disbursement Date.  In no event may the Alternative Payroll Covered Period extend beyond December 31, 2020.  Borrowers that elect to use the Alternative Payroll Covered Period must apply the Alternative Payroll Covered Period wherever there is a reference in the application to “the Covered Period or the Alternative Payroll Covered Period.”

Payroll Costs.  Payroll Costs that are eligible for forgiveness include both Payroll Costs paid and Payroll Costs that are incurred during the Covered Period or the Alternative Payroll Covered Period.  For Payroll Costs that are incurred, such costs must be paid on the next pay day following the Covered Period or Alternative Payroll Covered Period for those Payroll Costs to be forgiven.  Forgivable Payroll Costs include the sum of:

  1. For Employees, the sum of gross salary, gross wages, gross tips, gross commissions, paid leave (vacation, family, medical or sick leave, not including leave covered by the Families First Coronavirus Response Act), and allowances for dismissal or separation paid or incurred during the Covered Period or the Alternative Payroll Covered Period. For each individual employee, the total amount of cash compensation eligible for forgiveness may not exceed an annual salary of $100,000, as prorated for the Covered Period. For an 8-week Covered Period, that total is $15,385. For a 24-week Covered Period, that total is $46,154 for purposes of this 3508EZ. You can only include compensation of employees who were employed by the Borrower at any point during the Covered Period or Alternative Payroll Covered Period and whose principal place of residence is in the United States.
  2. The total amount paid by the Borrower for:
    1. Employer contributions for employee health insurance, including employer contributions to a self-insured, employer-sponsored group health plan, but excluding any pre-tax or after-tax contributions by employees. Do not add employer health insurance contributions made on behalf of a self-employed individual, general partners, or owner-employees of an S-corporation, because such payments are already included in their compensation.
    2. Employer contributions to employee retirement plans, excluding any pre-tax or after-tax contributions by employees, but excluding any employer retirement contributions made on behalf of a self-employed individual or general partners (such payments are already included in their compensation, and contributions on behalf of owner-employees are capped at 2.5 months’ worth of the 2019 contribution amount).
    3. Employer state and local taxes paid by the Borrower and assessed on employee compensation (e.g., state unemployment insurance tax), excluding any taxes withheld from employee earnings.

For owners (owner-employees, self-employed individual, or general partners) Payroll Costs are capped.  For a 24-week Covered Period, Payroll Costs are capped at $20,833 (the 2.5-month equivalent of $100,000 per year) for each individual or the 2.5-month equivalent of their applicable compensation in 2019, whichever is lower. For an 8-week Covered Period, this amount is capped at 8/52 of 2019 compensation (up to $15,385).

SBA Form 3508EZ includes a very simple “Forgiveness Amount Calculation” requiring the entry of only five amounts and one simple calculation to arrive at the amount of requested PPP Loan forgiveness:

    1. Payroll Costs;
    2. Business Mortgage Interest Payments;
    3. Business Rent or Lease Payments (for real property or personal business property);
    4. Business Utility Payments;
    5. Total of Items 1, 2, 3, and 4;
    6. PPP Loan Amount; and
    7. Payroll Costs (Line 1) divided by 0.60

The amount of the PPP Loan that can be forgiven is the smallest of the figures entered for Items 5, 6 and 7.

SBA Form 3508 is longer because it requires calculations for and reduction in the loan forgiveness amount due to a decrease in the FTEE during the Covered Period or the Alternative Payroll Covered Period and any salary or hourly wage reduction in excess of 25% during the Covered Period or the Alternative Covered Period.  The Instructions to SBA Form 3508 include work sheets to determine whether an adjustment is required.  The PPP Schedule A Worksheet walks the Borrower through the necessary calculations to determine whether the entire amount of the PPP Loan is eligible for forgiveness, and if not, calculates the amount of necessary reductions.

Both forms include certifications that are to be made by an authorized representative of the Borrower, confirming the conditions for PPP Loan forgiveness required by the CARES Act.

The instructions for each Form list the supporting documentation that must be submitted with the completed application, including:

  1. Documentation verifying the Payroll Costs paid during the Covered Period or Alternate Payroll Covered Period, including bank account statements, payroll reports documenting the amount of cash compensation paid to employees which may be a report from a payroll service provider, payroll tax filings and state quarterly wage reporting and unemployment insurance tax filings, documentation showing employer contributions to employee health insurance and retirement plans.
  2. Documentation verifying the non-payroll obligations and the amounts paid during the Covered Period, including the following:
    1. For business mortgage interest payments, the lender amortization schedule or account statements for February 2020 and the months of the Covered Period and evidence of payments made;
    2. For business rent and lease payments, copies of the lease agreements or lessor account statements for February 2020 and the months of the Covered Period and evidence of payments made; and
    3. For utility payments copies of the utility invoices for February 2020 and the months of the Covered Period and evidence of payments made.
  1. If filing SBA Form 3508, documentation showing the average number of FTEE during the selected measuring period, including payroll tax filings and state quarterly wage reporting and unemployment insurance tax filings.

Each Borrower is also required to maintain supporting documentation and/or information for a period of 6-years after the date the loan is either forgiven or paid in full.

If filing SBA Form 3508 the Borrower is required to maintain the following:

      1. PPP Schedule A Worksheet or its equivalent.
      2. Documentation supporting the listing of each individual employee in PPP Schedule A Worksheet Table 1, including the “Salary/Hourly Wage Reduction” calculation, if necessary.
      3. Documentation supporting the listing of each individual employee in PPP Schedule A Worksheet Table 2; specifically, that each listed employee received during any single pay period in 2019 compensation at an annualized rate of more than $100,000.
      4. Documentation regarding any employee job offers and refusals, firings for cause, voluntary resignations, and written requests by any employee for reductions in work schedule and any inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020.
      5. Documentation supporting the certification, if made, that the Borrower was unable to operated between February 15, 2020 and the end of the Covered Period at the same level of business activity as before February 15, 2020 due to compliance with requirements related to the maintenance of standards of sanitation, social distancing, or other work or customer safety requirement related to COVID-19.
      6. Documentation supporting the PPP Schedule A Worksheet “FTE Reduction Safe Harbor.”
      7. All records relating to the Borrower’s PPP loan, including:
          1. documentation submitted with its PPP loan application,
          2. documentation supporting the Borrower’s certifications as to the necessity of the loan request and its eligibility for a PPP loan,
          3. documentation necessary to support the Borrower’s loan forgiveness application, and
          4. documentation demonstrating the Borrower’s material compliance with PPP requirements.

If filing SBA Form 3508EZ the Borrower is required to maintain the following:

      1. Documentation supporting each of the certifications given by Borrower qualifying the Borrower to file SBA Form 3508EZ;
      2. Documentation regarding any employee job offers and refusals, firings for cause, voluntary resignations, and written requests by any employee for reductions in work schedule and any inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020.
      3. All records relating to the Borrower’s PPP loan, including:
          1. documentation submitted with its PPP loan application,
          2. documentation supporting the Borrower’s certifications as to the necessity of the loan request and its eligibility for a PPP loan,
          3. documentation necessary to support the Borrower’s loan forgiveness application, and
          4. documentation demonstrating the Borrower’s material compliance with PPP requirements.

Finally, the Borrower is also required to permit authorized representatives of SBA, including representatives of its Office of Inspector General, to access such files upon request.


[1] The SBA had originally set the requirement at 75%, which was reduced by the Paycheck Protection Program Flexibility Act to 60%.

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