An Important Update on the Paycheck Protection Program for Employers Who Owe $50,000 or Less

The main component of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) that was signed into law on March 27, 2020, was the Paycheck Protection Program (PPP) to help employers continue to pay their employees. 

The PPP included $659 billion in funds and was part of the $2 trillion CARES Act. It was designed to provide loans to businesses to guarantee their payroll and other employment costs to help these companies stay afloat and help their workers pay their bills. The major stipulation of the PPP is that 100% of the loan could be forgiven if certain stipulations were followed.

As of October 8, 2020, the repayment and forgiveness process for these PPP loans has changed to simplify and streamline the application process. Here’s an overview of the changes made to the application process.

PPP Loans: A Quick Overview

Enacted quickly to help companies stay in business during the onset of the pandemic, the CARES Act allowed the Small Business Administration (SBA) to make loans to qualifying businesses. The provision gave up to 24 weeks of cash-flow assistance for these businesses through 100 percent federally-guaranteed loans to continue to pay their employees and cover other non-payroll expenses. Rather than having to pay these loans back, they would be completely forgiven by the government if certain regulations were followed.

On June 5, the Paycheck Protection Program Flexibility Act (PPPFA) extended the available uses of these loans. Among other things like extending loan eligibility for business owners who have previously been convicted of a felony to protect their businesses and their employees, the PPPFA also made substantial changes as to how these loans could be used. 

For starters, the PPPFA decreased the percentage of a PPP loan that must be used for payroll costs from 75 percent down to 60 percent so that loans could also cover things like rent, mortgage interest, and utilities. 

The PPPFA also gave borrowers the ability to defer principal and interest payments and other fees for 10 months. Prior to enacting this legislation, the deferral period would have ended after 6 months, or on August 8, 2020.

Changes to Paycheck Protection Program Loan Forgiveness Structure

New rules released by the Treasury Department and the SBA give small business owners a bit more flexibility in having their loans forgiven. Now, borrowers of loans of $50,000 or less who submit a simplified Form 3508S PPP Loan Forgiveness Application Form will be exempt from any kind of reduction in loan forgiveness for having to reduce full-time equivalent employees, employee salaries, or other wages, as would have been previously stipulated by the PPP.

How is this possible? The SBA and Treasury Department have jointly determined that it is completely appropriate to exercise their rulemaking authority to grant these de minimis (trivial or minor) exemptions under Section 1106(d)(6) of the CARES Act.

If you have a PPP-guaranteed loan of less than $50,000, your lenders need to confirm the receipt of this new Form 3508S or an equivalent, along with any required supporting documentation. Your lender does not have to independently verify this information if the documents are all submitted and you attest that it correctly verifies the payments for eligible costs.

About Excess Payroll and Non-Payroll Costs

If, as a borrower, you submit documentation of costs that exceed the amount of your PPP loan with your simplified Loan Forgiveness Application Form 3508S, you will not receive any additional loan forgiveness beyond the initial principal amount of your PPP loan. You can learn more about the rules for completing this new simplified form here. 

A Simplified Loan Forgiveness Form

This new form, Form 3508S was released to replace the only five-page application with a shorter two-page application. The goal is to help those with loans of $50,000 have their loans processed more quickly while still protecting against fraud or misuse of funds. 

What kind of information will you be asked to supply?

• Basic information about your business, including your business’s legal name, your FEIN (Federal Employer Identification Number), contact information, and PPP loan information.
• The total forgiveness amount with a number of certifications proving this, as well as a signature by the authorized representative.
• The second page of the form is optional but collects demographic information.
• Supporting documentation for payroll expenses like bank account statements, third-party payroll reports, tax forms, and account statements for things like employer contributions to health and retirement plans, as well as non-payroll expenses like mortgage and interest payment receipts, a copy of your current lease, and invoices for utilities.

All of this has been designed to keep businesses up and running during the pandemic, to support their employees, to maintain their current location, and provide additional relief for COVID-19-related relief in a much easier way.