On Friday, May 15, 2020, the U.S. Small Business Administration ("SBA"), in consultation with the U.S. Department of the Treasury, published its 11-page Paycheck Protection Program ("PPP") Loan Forgiveness Application and instructions (SBA Form 3508).
As SBA notes, the "documents released today will help small businesses seek forgiveness at the conclusion of the eight week covered period, which begins with the disbursement of their loans." In addition, SBA anticipates that it will soon release regulations and guidance on PPP loan forgiveness, including information on borrower responsibilities.
SBA Form 3508 – PPP Loan Forgiveness Application
On first glance, the PPP Loan Forgiveness Application provides detailed instructions for borrowers, including how to calculate the forgiveness amount. Notably, the application also provides a summary of costs that are eligible for forgiveness. Those costs include:
Eligible Payroll Costs
Eligible Nonpayroll Costs*
*Note: eligible nonpayroll costs cannot exceed 25% of the total PPP loan forgiveness amount.
Borrowers submitting the PPP Loan Forgiveness Application will be required to submit two documents to their lenders as part of this application: (1) the PPP Loan Forgiveness Calculation Form, and (2) PPP Schedule A. As part of the application package, borrowers must also include a number of other documents, such as:
Bank account statements or third-party payroll service provider reports
Payment receipts, cancelled checks, or account statements documenting the amount of any employer contributions to employee health insurance and retirement plans
documents showing the average number of FTE employees on payroll per month employed by the Borrower between February 15, 2019 and June 30, 2019
documents showing the average number of FTE employees on payroll per month employed by the Borrower between January 1, 2020 and February 29, 2020
in the case of a seasonal employer, documents showing 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
Business mortgage interest payments: Copy of lender amortization schedule and receipts or cancelled checks verifying eligible payments
Business rent or lease payments: Copy of current lease agreement and receipts or cancelled checks verifying eligible payments from the Covered Period
Business utility payments: Copy of invoices from February 2020 and those paid during the Covered Period and receipts, cancelled checks, or account statements verifying those eligible payments
Like the PPP Loan Application, the PPP Loan Forgiveness Application also requires borrowers certify, among other things:
That the dollar amount requested:
was used to pay costs that are eligible for forgiveness
includes all applicable reductions due to decreases in the number of full-time equivalent employees and salary/hourly wage reductions
does not include nonpayroll costs in excess of 25% of the amount requested
does not exceed eight weeks’ worth of 2019 compensation for any owner-employee or self-employed individual/general partner, capped at $15,385 per individual
That the government may pursue recovery of loan amounts and/or civil or criminal fraud charges if funds were used for unauthorized purposes
That you have accurately verified the payments for the eligible payroll and nonpayroll costs
The PPP Loan Forgiveness Application is robust and includes detailed instructions, which will ultimately help small businesses accurately calculate loan forgiveness amounts. While the SBA or Treasury has not, at the time of writing, published loan forgiveness rules or guidance, we anticipate that it will be published sometime soon.
Lastly, as a reminder, the HEROES Act is making its way through Congress, so it's possible that borrowers will see changes that impact PPP loan forgiveness (e.g., extending the covered period under the PPP to 24 weeks, among others).
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