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New PPP Loan Application - Now What?

October 29, 2020

We have all been waiting for Congress to take action on the Paycheck Protection Program (“PPP”) loan forgiveness simplification to help small business owners.  That seems unlikely to happen prior to the election.  So what now?  Should a business start the forgiveness process, or wait?  

SBA New PPP Application

While Congress has made no moves toward PPP loan forgiveness simplification, the Small Business Administration (“SBA”) and the Department of the Treasury issued an Interim Final Rule (“IFR”) and a streamlined PPP forgiveness application for loans of $50,000 or less.  The new application exempts qualified borrowers from the complex loan forgiveness restrictions caused by reductions in employee headcount and/or wages.  This is welcomed relief for recipients of smaller loan amounts.  They can receive full forgiveness despite workforce or wage reductions. 

In addition to the application, lenders still require documentation of qualified expenses and borrowers must also attest/certify to the accuracy of the reported information and calculations on the simplified form.

With this new IFR, there are now three PPP loan forgiveness applications:

    1. Form 3508S – to be used for loans of 50,000 or less.

      Note:
      As of the date of this publication some of the major banks, like Chase and Bank of America, are not ready to process form 3508S. You can check their readiness by going directly to your bank’s website.  Here are the Chase and Bank of America websites for your use.

    2. Form 3508EZ – page one of the instructions contains the qualifiers.  If you can answer “yes” to one of the three you can use the EZ form.

    3. Form 3508

Other PPP Loan Considerations

At the risk of sounding like a broken record, there are still many details that are unresolved and need clarification. This leaves many businesses wondering what to do. Important considerations include:

    1. Is your bank accepting PPP forgiveness applications yet?  Is it even an option for you?  If so, how much documentation are they requiring in their process?

    2. Did you spend the entire PPP loan amount on wages during the 24 week period?  While other expenses are eligible expenditures, wages may be the easiest to document and get bank approval for.  Note the maximum wages that can be considered for loan forgiveness using the 24 week period is $46,154 per non-owner employee.  The interim final rule did not adjust owner compensation limits.  Owner compensation eligible for forgiveness remains at $20,833.

    3. How could the election impact the PPP loan forgiveness process?  Could changes in Congress and/or the President result in changes to the PPP program in 2021 that will impact you now?  We have already seen firsthand how fluid and evolving this process has been, with rule changes and clarifications issued after the fact that have a real impact on the decisions you may need to make now.

    4. Do you have other loans or covenants the PPP loan will impact if it is not forgiven by year-end?

    5. Will you incur unintended tax consequences if your loan is not forgiven by year-end?

    6. Are you considering a sale of your business?  

What should I do?

We wish we had the ideal answer for you.  Only you can make that decision and there is widespread debate in the CPA, legal and banking communities on what actions are best to take.  The following actions might be considered:

    • If your loan is $50,000 or less AND you spent the entire loan on qualifying payroll expenses within the 24-week period, AND your bank has opened applications, you may want to apply for forgiveness now with the new simplified application. For example, if you are the only employee of your business, AND your loan amount is $20,833, the loan forgiveness process should be fairly simple with the new application.

    • If you spent the entire loan on qualifying payroll expenses within the 24-week period AND can use the “EZ” form, you may want to apply now to put the PPP loan issues behind you as soon as possible.

    • If you are optimistic Congress will further simplify the forgiveness process and are comfortable leaving the loan as-is for now, you could wait on applying for forgiveness.  

We will continue to closely monitor the rulings about PPP loans and forgiveness and share that information with you as it becomes available.  We are your advocates and are in your corner!  

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