The Small Business Administration (SBA) has released a simple one-page forgiveness application for Paycheck Protection Program (PPP) borrowers who obtained loans of $50,000 or less. The new application removes calculations required on prior forms and simplifies documentation requirements.
No Calculations Required on the Form
The new application does not require calculations and instead only requires small-business borrowers to confirm that the PPP-loan proceeds were used for eligible costs, and to provide supporting documentation showing payment of these expenses. Small-business owners will certify on the forgiveness request that the forgiveness amount is within the SBA guidelines. Small-business owners should be aware that all forgiveness requests are subject to audit by the SBA, and business owners are advised to maintain their underlying PPP records for six years.
A big shift will come as a result of prior PPP rule changes that extended the period of when PPP funds can be used (from eight to 24 weeks). PPP loan amounts were determined and given based on 2.5 months (about 10 weeks) of the small businesses 2019 payroll. Since the loan amount was based on approximately 10 weeks of payroll, and since small businesses now have 24 weeks to spend it, it is likely that most small businesses that have been able to operate or open back up will see their entire PPP loan forgiven just by showing their payment of payroll costs alone. PPP loan proceeds can be spent on payroll costs entirely and are always eligible for forgiveness when spent on payroll, but a small business could also use up to 40 percent of its PPP loan funds on other qualifying expense, such as rent, business mortgage payments and utilities.
The Documentation Requirements are Simplified
For example, if a small business used their entire PPP proceeds to pay payroll to themselves or their employees, they can simply submit bank statements or cancelled checks showing those payments from the business to the employee to document the qualifying payments (payments can include pay to the business owner). While a borrower can include quarterly tax form 941 documenting payroll paid, it is not required. The SBA is simply requesting documentation of the payment from the business. Keep in mind, the business owner’s payroll that is eligible for forgiveness is capped at $20,833. Also, if the business obtained an EIDL Advance, that amount is subtracted on the forgiveness request from the amount that would otherwise be eligible for forgiveness.
One important item to note when submitting evidence of payment revolves around employee “gross pay” and the payment amount that is actually on a paycheck to an employee. Payroll costs eligible for forgiveness are best defined as employee “gross pay.” The amount on a typical employee’s paycheck is their gross pay minus employee FICA taxes and state and federal income tax withholding sent. Small businesses should keep this in mind when gathering evidence of payment (checks, bank statements) and adding up their eligible payroll cost, as the gross pay and amount eligible for forgiveness will be more than the actual paycheck or payment paid to employees.
Who Cannot Use the New Simplified Application
The new simplified application cannot be used by small businesses that reduced their full-time employee headcount from pre-pandemic levels or have reduced pay rates by greater than 25 percent. In these instances, PPP borrowers will need to use the standard PPP loan-forgiveness application, and qualifying payroll costs will be reduced based on pay rate decreases or full-time employee headcount decreases. For small businesses that can’t use the new simplified application solely because their loan amount was greater than $50,000, they can use the SBA’s PPP EZ Application.
There is one final consideration for small businesses that obtained a PPP loan in excess of $50,000 but less than $150,000. There is pending legislation that, if approved by Congress and the President, would provide a similar one-page PPP forgiveness request for PPP loans under $150,000. While the bill has bipartisan support, it’s uncertain whether it would be enacted on its own or as part of the next stimulus package.
Processing-Procedure Timeline for PPP Forgiveness Applications
To request PPP loan forgiveness, a small business will submit its PPP forgiveness application to the bank or lender who originated their PPP loan. The bank then has 60 days to render its decision, and if approved by the bank, the loan will then be submitted by the bank to the SBA. The SBA then has 90 days to review and approve the application. Once approved by the SBA, the SBA will send payment to the bank paying off the small businesses PPP loan.
We will continue to keep you updated as more information becomes available.