Simplified PPP Loan Forgiveness
The Small Business Administration (SBA) updated the Paycheck Protection Program (PPP) FAQs and issued a new interim final rule in conjunction with the issuance of a new simplified loan forgiveness application, Form 3508S, for borrowers that received a PPP loan of $50,000 or less. The new form exempts borrowers from reductions in loan forgiveness amounts based on reductions in full-time equivalent employees or reductions in employee salaries or wages.
The SBA began approving PPP loan forgiveness applications and remitting forgiveness payments to PPP lenders for PPP borrowers on October 2, 2020. While many physician practices have applied for PPP loans and used the proceeds to float their office operations until the pandemic winds down and operations return to normal, the amount of paperwork and procedures that must be followed to obtain forgiveness of PPP loans can be cumbersome and time-consuming. For some physician practices, the paperwork and calculations involved in the PPP process and the expense of hiring accountants and other professionals to navigate the compliance issues involved in obtaining loans, as well as the subsequent forgiveness of such loans, have been daunting. (Believe me, I know!)
Interim Final Rule
On October 8, in order to help businesses mitigate some of these issues, the SBA issued Interim Final Rule SBA-2020-0052. The purpose of this interim final rule is to simplify further (1) the forgiveness and loan review processes for PPP loans of $50,000 or less, and (2) lender responsibilities with respect to the review of borrower documentation of eligible costs for forgiveness in excess of a borrower’s PPP loan amount.
In connection with the issuance of this rule, the SBA issued an alternative Loan Forgiveness Application, SBA Form 3508S, for use by PPP borrowers applying for loan forgiveness on PPP loans with a total loan amount of $50,000 or less, except for those borrowers that together with their affiliates received loans totaling $2 million or greater.
Limiting Reductions to Loan Forgiveness Amount
A borrower that applies for PPP loan forgiveness on SBA Form 3508S (or a lender’s equivalent form) is exempt from any reductions in the borrower’s loan forgiveness amount based on reductions in full-time equivalent (FTE) employees or reductions in employee salary or wages that would otherwise apply.
The Small Business Administrator and Treasury Secretary determined that these exemptions are an appropriate exercise of their joint rulemaking authority to grant de minimis exemptions under the CARES Act and are consistent with the purposes of the CARES Act including to provide much-needed financial assistance to a broad range of small businesses and provide borrowers appropriate flexibility in the current economic climate. According to the SBA, there are approximately 3.57 million outstanding PPP loans of $50,000 or less, totaling approximately $62 billion of the $525 billion in PPP loans. To the extent that these businesses have no employees other than the owner, they are not affected by these exemptions.
As a result, the SBA and Treasury Department estimate that the outstanding PPP loans of the relevant set of potentially affected borrowers (businesses with at least one employee other than the owner) total approximately $49 billion, or 9 percent of the overall PPP loan amount. Within this population of potentially affected loans, the SBA said that most borrowers would not be affected by the loan forgiveness reduction requirements because:
- The borrowers did not reduce FTE employees or reduce employee salaries or wages, or
- The borrowers would qualify for one of the existing exemptions from loan forgiveness amount reductions.
Excluding such borrowers, the SBA said, the aggregate dollar amount of PPP funds affected by these exemptions relative to the aggregate dollar amount of all PPP funds is de minimis.
Changes to PPP Loan Review Rules
The SBA noted that, because it is issuing another alternative Loan Forgiveness Application, SBA Form 3508S, revisions to the loan review rules are also appropriate to incorporate the addition of new Form 3508S. Accordingly, the SBA provides that, when a borrower submits SBA Form 3508S or a lender’s equivalent form, the lender must:
- Confirm receipt of the borrower certifications contained in the SBA Form 3508S or lender’s equivalent form; and
- Confirm receipt of the documentation the borrower must submit to aid in verifying payroll and nonpayroll costs,
as specified in the instructions to the SBA Form 3508S or lender’s equivalent form.
Providing an accurate calculation of the loan forgiveness amount is the responsibility of the borrower, and the borrower must attest to the accuracy of the reported information and calculations on the Loan Forgiveness Application. The borrower cannot receive forgiveness without submitting all required documentation to the lender.
Citing SBA-2020-0015, the SBA stated that lenders may rely on borrower representations. The lender does not need to independently verify the borrower’s reported information if the borrower submits documentation supporting its request for loan forgiveness and attests that it accurately verified the payments for eligible costs.
The SBA also noted that, in some cases, a borrower may submit to lender documentation of eligible payroll and nonpayroll costs that exceed the amount of the borrower’s PPP loan. To address this situation, the SBA stated that the amount of loan forgiveness that a borrower may receive cannot exceed the principal amount of the PPP loan.
Whether a borrower submits SBA Form 3508, Form 3508EZ, Form 3508S, or a lender’s equivalent form, a lender must confirm receipt of the documentation the borrower is required to submit to aid in verifying payroll and nonpayroll costs, and, if applicable (for SBA Form 3508, 3508EZ, or a lender’s equivalent form), confirm the borrower’s calculations on the borrower’s Loan Forgiveness Application, up to the amount required to reach the requested forgiveness amount.