The U.S. Small Business Administration (SBA) released an application form and instructions for Paycheck Protection Program (PPP) loan forgiveness. The form provides detailed instructions for borrowers and the calculation of PPP loan forgiveness. Under the procedures, a borrower must file SBA Form 3508, Paycheck Protection Program Loan Forgiveness Application. The application has four components: (1) the PPP Loan Forgiveness Calculation Form; (2) PPP Schedule A; (3) the PPP Schedule A Worksheet; and (4) the (optional) PPP Borrower Demographic Information Form. Borrowers are required to submit items (1) and (2) along with supporting documents to their lender. Here are some noteworthy components of the SBA Form 3508.
Loans in Excess of $2 Million
The SBA Form 3508 includes a box that needs to be checked by borrowers who, together with its affiliates, received PPP loans with an original principal amount in excess of $2 million. This provision is expected to flag PPP loans that the Treasury Department has already warned it will audit. However, the form’s instructions specifically limit the obligation to check this flag-raising box to loans aggregated with affiliates “to the extent required under SBA’s interim final rule on affiliates (85 CFR 20817 (April 15, 2020))”. The borrowers still have to interpret the meaning of those affiliation rules to determine whether to check the box.
Summary of Costs Eligible for Forgiveness
The SBA Form 3508 also provides two broad categories of costs that are subject to forgiveness: eligible payroll costs and eligible nonpayroll costs (covered mortgage obligations, covered rent obligations, and covered utility obligations).
Borrowers are generally eligible for forgiveness for payroll costs paid and payroll costs incurred during the eight-week (56-day) covered period (or alternative payroll covered period). Payroll costs are considered paid on the day that paychecks are distributed or the borrower originates ACH credit transactions. Payroll costs are considered incurred on the day that the employee’s pay is earned. Payroll costs incurred but not paid during the borrower’s last pay period are eligible for forgiveness if paid on or before the next regular payroll date. In short, a borrower does not need to adjust its payroll schedule in order to qualify for payroll expense forgiveness. As previously discussed, for each individual employee, the total amount of cash compensation eligible for forgiveness may not exceed an annual salary of $100,000, as prorated for the covered period.
Nonpayroll costs eligible for forgiveness consist of mortgage, rent, and utility payments for obligations that incurred before February 15, 2020. An eligible nonpayroll cost must be paid during the covered period or incurred during the covered period and paid on or before the next regular billing date, even if the billing date is after the covered period. Eligible nonpayroll costs cannot exceed 25% of the total forgiveness amount.
Alternative Payroll Covered Period
SBA allows, for administrative convenience, borrowers with a biweekly (or more frequent) payroll schedule to elect calculate eligible payroll costs using the eight-week (56-day) period that begins on the first day of their first pay period after their PPP loan disbursement date. However, borrowers who elect to use the alternative payroll covered period must apply the general covered period wherever there is a reference to “the Covered Period only”.
Example: Company A received PPP loan on April 20, and its first day of pay period following its PPP loan proceeds is on April 26. General covered period is April 20 through June 14. Alternative covered period is April 26 through June 20.
Documents that Each Borrower Must Submit with its PPP Loan Forgiveness Application
Documentation verifying the eligible cash compensation and non-cash benefit payments:
- Bank account statements or third-party payroll service provider reports,
- Tax forms for the periods such as:
- Federal payroll tax filings (typically, Form 941), and
- State payroll tax filings
- Payment receipts or account statements documenting the amount of any employer contributions to employee health insurance and retirement plans that the borrower included in the forgiveness amount
Documentation verifying existence of the obligations/services prior to February 15, 2020 and eligible payments from the covering period:
- Business mortgage interest payments: Copy of lender amortization schedule and receipts or cancelled checks verifying eligible payments from the Covered Period; or lender account statements from February 2020 and the months of the Covered Period through one month after the end of the Covered Period verifying interest amounts and eligible payments.
- Business rent or lease payments: Copy of current lease agreement and receipts or cancelled checks verifying eligible payments from the Covered Period; or lessor account statements from February 2020 and from the Covered Period through one month after the end of the Covered Period verifying eligible payments.
- 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.
The application also includes documents that are not required to be submitted but each borrower must contain.
Also, as president Trump is currently talking to restaurant industry leaders and it seems like there is a bipartisan consent to extend the PPP loan disbursement period from 8 up to 12 weeks, we should keep an eye out for any update.
For details, please see Paycheck Protection Program Loan Forgiveness Application