On October 8, 2020, the Small Business Administration (SBA) in consultation with the U.S Department of Treasury, announced a new interim final rule that can significantly streamline the loan forgiveness process for some PPP borrowers.
The interim final rule was accompanied by the release of a new PPP loan forgiveness application. SBA Form 3508S is a shortened and simplified version of the application. Who is eligible for this streamlined process, and how much simpler is it? Here are the key points for PPP loan borrowers to understand:
Who is eligible?
A business is eligible to apply for forgiveness of its PPP loan using the pared-down SBA Form 3508S if the amount borrowed does not exceed $50,000.
Are there other eligibility conditions?
There is one other criteria for eligibility for the streamlined loan forgiveness application. If a business has affiliates, the total amount borrowed in PPP funds by the business and its affiliates combined must not exceed $2M. For example, if a company borrowed $25,000 in a PPP loan, but its affiliates borrowed a combined $1,990,000, the company would be ineligible to use the new form, even though its individual loan was less than $50,000.
The SBA has rules that indicate what qualifies a certain entity as an affiliate; examples include companies that share management or stock ownership, like a parent organization.
What makes this new form easier?
SBA Form 3508S exempts borrowers from reductions in the amount of loan forgiveness they might otherwise have been subject to if they cut back on their number of full-time equivalent (FTE) employees, or if they cut wages.
The new form also allows borrowers to submit the application without showing how they calculated the amount they are asking to be forgiven. It’s important to note, however, that the SBA could request to see those calculations as part of their review of the loan.
In making a streamlined loan forgiveness application available to borrowers of smaller loan amounts meeting the criteria listed above, the SBA and the Department of Treasury hope to ease the burden for borrowers seeking forgiveness as well as the lending institutions processing the loans and forgiveness applications.
To determine whether your business is eligible to use SBA Form 3508S, consult with your small business tax expert today.
From the beginning, it is still our recommendation to hold off on applying for forgiveness as we expect more guidance to be forthcoming. As a reminder, the forgiveness deadline is 10 months from the end of your covered period (6 months after you received the funds).
Matt Brady, CPA