The Paycheck Protection Program (PPP) has been a crucial resource for small businesses faced with the economic challenges resulting from the COVID-19 health crisis. A series of updates and revisions have since been issued, helping to clarify and streamline the process for business owners seeking to take advantage of the offered relief. Most recently, the Small Business Administration (SBA) has released a revised PPP loan forgiveness application along with updated instructions.
The revised application and its new instructions, released on June 17, implement the Flexibility Act aimed at providing small business owners with greater ease and flexibility in the usage of PPP funds.
The following are the key takeaways for small business owners who have already obtained PPP loans or who plan to apply for a loan by the June 30, 2020 deadline:
>> There’s a new “EZ” version of the Loan Forgiveness Application: Form 3508EZ has been released as a new, easier version of the loan forgiveness application. Designed to require less time, calculation, and documentation for small business owners seeking forgiveness for PPP loans, the EZ form leaves out the calculations for full time equivalent employees (FTE) and for the potential forgiveness reduction related to wage cuts of 25% or more for employees making up to $100K in 2019.
>> Small businesses must meet certain criteria in order to use the EZ form: Borrowers are eligible to use the form if they meet any one of these three conditions:
- The borrower is self-employed, an independent contractor, or a sole proprietor. In order to meet this condition, the business owner must have had no employees when she applied for the PPP loan, and must not have included any employee wages in calculating payroll on the loan application.
- The borrower didn’t cut wages for employees making up to $100K by more than 25% during the Covered Period or Alternate Payroll Covered Period. Additionally, to meet this condition the borrower must not have reduced his workforce or the average paid hours during the period spanning January 1, 2020 and the end of the Covered Period.
- The borrower didn’t cut wages by more than 25% for employees making up to $100K by more than 25% during the Covered Period or Alternate Payroll Covered Period, and was unable to operate at the same level of activity as she did prior to February 15, 2020 due to health related regulations and restrictions issued between March 1, 2020 and December 31, 2020.
>> There is flexibility with the coverage period. Whether using the new Form 3508EZ or the original Form 3508 to apply for loan forgiveness, borrowers whose loan was made prior to June 5, 2020 can choose the 8-week Covered Period or the 24-week Coverage Period. The SBA has yet to clarify whether business owners can apply for loan forgiveness at some point between the designated 8 and 24 weeks.
>> Payroll costs are capped for employees and owners: Both the EZ form and the original loan forgiveness application specify the caps for payroll costs that are eligible for forgiveness.
- For employees making up to $100K the cap is $15,385 ($100K x 8/52) for an 8-week Covered Period, and $46,154 ($100K x 24/52) for a 24-week Covered Period.
- For business owners the cap is $15,385 (($100K x 8/52) for an 8-week Covered Period, and $20,833 ($100K x 2.5/12) for a 24-week Covered Period. The cap for the 24-week Covered Period for owners is based on limiting forgiveness to the equivalent of 2.5 months of compensation.
>> Payroll must account for 60% of the allocation of PPP funds. Whichever form is used, and whether the 8-week or 24-week Covered Period is chosen, loan forgiveness for eligible non-payroll expenses cannot exceed 40% of the forgivable amount.
The new loan forgiveness application and instructions have the potential to save time and work for many small business owners. Check in with your trusted small business CPA firm to make sure you are up to date on the latest revisions and requirements and are taking advantage of every opportunity to maximize your PPP loan forgiveness.
Matt Brady, CPA