PPP Forgiveness Application (Updated)

Now that the Flexibility Act has been signed into law and the SBA has released the associated Interim Final Rules it's time to evaluate the impact of these changes to the forgiveness application.

In fact, there are now 2 options for applications.  A simplified application, Form 3508EZ, is now available for borrowers that meet certain requirements.  They have also pulled the instructions out of the applications for simplicity.

Let's get to it.

PPP Form 3508EZ Qualifications

The top of the instructions form has 3 boxes that outline the qualifications.  However, the borrower is only required to meet one of the qualifications to use Form EZ.

The qualifications are:

1. The Borrower is a self-employed individual, independent contractor, or sole proprietor who had no employees at the time of the PPP loan application and did not include any employee salaries in the computation of average monthly payroll in the Borrower Application Form; or
2. The borrower did not reduce annual salaries or wages by more than 25% during the Covered Period when compared to the period between January 1, 2020 and March 31, 2020 AND the Borrower did not reduce FTE's between January 1, 2020 and the end of the Covered Period (subject to the new Exemption in the Flexibility Act); or
3. The borrower did not reduce annual salaries or wages by more than 25% during the Covered Period when compared to the period between January 1, 2020 and March 31, 2020 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 established or guidance issued between March 1, 2020 and December 31, 2020 by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration.

PPP Form 3508EZ Differences

This form is designed to reduce the required documentation and simplify the application process.  Some of the ways it accomplishes this are as follows:

• Schedule A is not required.
• FTE documentation is significantly reduced. FTE documentation is not required unless the borrower is relying on qualification number 2 (above) for filing the EZ Form..  In that case, the borrower would be required to submit the average number of full-time equivalent employees employed  on January 1, 2020 and at the end of the Covered Period.
  • However, in all cases, even though not required to be submitted with the application, we would recommend keeping the necessary documentation supporting the basis for the borrower's qualifications (i.e., payroll and FTE's) in case of audit.

The EZ Form, however, does expand the representation and certifications required.  These certifications are essentially the qualifications restated.  So, if you meet the qualifications and follow the instructions on the forgiveness form, the signor should be able to certify the additional items in good faith.

Other Highlights:

• The Alternative Payroll Covered Period is still available for both the EZ Form and the long form, using either a 168-day or 56-day period for borrowers with a biweekly (or more frequent) payroll.
• Cash compensation – the definition remains the same, and the cap is still $15,385 for an 8-week Covered Period and is increased to $46,154 for a 24-week Covered Period.
• Amounts paid to Owners – the definition remains the same and the cap for an 8-week Covered Period remains at the lesser of 8/52 of 2019 owner compensation or $15,385 (8/52 x $100k). For borrowers with a 24-week Covered Period, the cap is the lesser of 2.5/12 x 2019 owner compensation or $20,833 (2.5/12 x $100k).  The reason for limiting owner compensation in such a way is because the original loan amount was based on 2.5 months of payroll costs.  This limitation avoids giving a windfall to an owner who has not retained employees whose compensation, in addition to their own, factored into the calculation of their loan amount (see question f. ii of the Interim Final Rule on Revisions to the Third and Sixth Interim Final Rules).
• Previously, employer health insurance premiums paid for owner-employees of an S-corporation were includible on Line 6 of PPP Schedule A. The revised instructions explicitly exclude health insurance premiums for owner-employees of an S-corporation in addition to self-employed individuals and general partners.

Resources:

You can download the Instructions and Applications below:

• Loan Forgiveness Application Form EZ Instructions
• Loan Forgiveness Application Form EZ
• Loan Forgiveness Application FAQs
• Loan Forgiveness Application (revised 6/16/2020)

Changes to the PPP Forgiveness Application

If you need assistance in evaluating your company’s PPP loan application or the impact of the changes to the forgiveness application brought forth by the Flexibility Act, please contact Jason Shultz, Assurance Partner, at jshultz@hogantaylor.com or email SBALoans@hogantaylor.com.

INFORMATIONAL PURPOSE ONLY. This content is for informational purposes only. The above analysis is subject to change. This content does not constitute professional or legal advice and should not be relied upon by you or any third party, including to operate or promote your business, secure financing or capital in any form, obtain any regulatory or governmental approvals, or otherwise be used in connection with procuring services or other benefits from any entity. Before making any decision or taking any action, you should consult with professional advisors.