On June 22, 2020, the United States Small Business Administration (“SBA”) released additional guidance related to the Paycheck Protection Program loans (“PPP Loans”) in the form of an Interim Final Rule (“IFR”), which addresses the timing of submitting a loan forgiveness application and that the SBA will allow early loan forgiveness applications. This IFR states that a “borrower may submit a loan forgiveness application any time on or before the maturity date of the loan, including before the end of the covered period (emphasis added), if the borrower has used all of the loan proceeds for which the borrower is requesting forgiveness.” This means that the recipient of a PPP Loan is able to submit an early loan forgiveness application, once the borrower has spent the PPP Loan proceeds and before the end of the borrower’s 8-week or 24-week covered period.
It should be noted, however that if the borrower applies for forgiveness before the end of the covered period and has reduced any employee’s salary or wages in excess of 25%, the borrower must account for the excess salary reduction for the full 8-week or 24-week covered period. For example, if an employee’s salary is reduced during the covered period and the application for early loan forgiveness is submitted before the end of the covered period, the loan recipient must still account for the reduction in wages for the entirety of the 8-week or 24-week covered period by assuming the employee’s wages will remain at the reduced rate for the rest of the covered period.
The below outlines recent updates and necessary steps for applying for forgiveness.
Types of PPP Loan Forgiveness Applications
The SBA has created two kinds of PPP Loan forgiveness applications: SBA Form 3508 (the “Regular Application”) and SBA Form 3508EZ (the “EZ Application”), both of which can be found here. The EZ Application involves a less cumbersome application process than the Regular Application, but in order to use the EZ form a borrower must meet at least one of the following requirements:
- the borrower is a self-employed individual, independent contract or sole proprietor who has no employees;
- the borrower did not reduce salary or wages of any employee by more than 25% during the covered period AND 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
- the borrower did not reduce salary or wages of any employee by more than 25% during the covered period AND was unable to operate during the covered period at the same level of business activity as before February 15, 2020, due to compliance with COVID-19 related guidance set by the Department of Health and Human Services, the Center for Disease Control or the Occupational Safety and Health Administration issued between March 1, 2020, and December 31, 2020.
Supporting Documents for PPP Loan Forgiveness Application
In addition to the information needed to complete the applicable PPP Loan forgiveness application, a number of supporting documents must be provided; the documents are classified as payroll, non-payroll and full-time equivalent (“FTE”) related documents. While the Regular Application requires documentation from all three classifications, the EZ Application requires only payroll and non-payroll documentation.
In order to verify eligible cash compensation and non-cash benefit payments for the covered period, the borrower must provide the following payroll documents:
- Bank account statements or third-party payroll provider reports showing the amount of cash compensation paid to employees.
- Tax forms or equivalent third-party payroll provider reports for the periods that overlap with the covered period, including payroll tax filings that have been or will be reported to the IRS and state quarterly business and individual wage reporting and unemployment insurance tax filings that have been or will be reported to the relevant state.
- Payment receipts, cancelled checks or account statements documenting employer contributions to employee health insurance and retirement plans that were included in the forgiveness amount.
In order to verify the existence of obligations/services prior to February 15, 2020, and eligible payments from the covered period the borrower must provide the following non-payroll documents:
Mortgage Interest Payments
- For business mortgage interest payments, the borrower must provide a copy of:
- lender amortization schedule and receipts or cancelled checks verifying eligible payments form the covered period; or
- lender account statements from February 2020 and the months of the covered period through one month after the end of the covered period verifying interest amounts and eligible payments.
Rent or Lease Payments
- For business rent or lease payments, the borrower must provide a copy of:
- the current lease agreement and receipts or cancelled checks verifying eligible payments from the covered period; or
- lessor account statements from February 2020 and from the covered period through one month after the end of the covered period verifying eligible payments.
- For business utility payments, the borrower must provide a copy of:
- invoices from February 2020 and those paid during the covered period and receipts, cancelled checks or account statements verifying those eligible payments.
The borrower must provide the following FTE documents:
- documentation showing the average number of FTE employees on payroll per month employed by the borrower between February 15, 2019, and June 30, 2019;
- documentation showing the average number of FTE employees on payroll per month employed by the borrower between January 1, 2020, and February 29, 2020; or
- in the case of a seasonal employer, the average number of FTE employees on payroll per month employed by the borrower between February 15, 2019, and June 30, 2019; between January 1, 2020, and February 29, 2020; or any consecutive twelve-week period between May 1, 2019, and September 15, 2019.
The information provided are general guidelines and should not be considered professional advice. Every client has unique circumstances which may not fall within the circumstances described above. Additional guidance may be issued which changes the foregoing discussion. The Business and Corporate attorneys at Dvorak Law Group can assist with determining when to apply for forgiveness and identifying the correct application and supporting documentation necessary for your PPP Loan to be forgiven. Please contact Dvorak Law Group for specific questions and recommendations regarding the same.