Since it was created by the Coronavirus Aid, Relief, and Economic Security Act in March, the Paycheck Protection Program has provided billions of dollars in loans to small businesses affected by the COVID-19 pandemic. The funding has helped them to stay open, pay their expenses (including rent and mortgage interest), and keep employees on payroll. However, the program, which is administered by the Small Business Administration and the Treasury Department through individual lenders, has faced challenges. Its requirements, timeline, and forgiveness process have been changed, and multiple extensions and reauthorizations have been made to allow it to continue helping businesses in need.
The good news for PPP borrowers is that the Treasury Department has officially begun processing forgiveness applications. All PPP borrowers should submit the application directly to their lender, not to the SBA or the Treasury. The lender will review it and submit it to those agencies. The review and approval process may take anywhere from a few business days to 150 days, the statutory maximum allowed. PPP loans of $2 million or more will automatically be audited, per Treasury policy, but smaller loans may be randomly audited as well.
Borrowers have multiple options when deciding which of the three forms they’ll use to apply for forgiveness:
Form 3508 was the original application and includes a forgiveness calculation form; certification that the amount borrowers seek forgiveness for was used for appropriate purposes and that they have provided supporting documentation to their lender; and a requirement to provide detailed information regarding the number of employees and their salary or wages. The full application is five pages, and any borrower can use it. But if borrowers qualify to use one of the other two forgiveness applications, they may not want to use this one.
Form 3508EZ, or the EZ Application, was released in the spring after an outcry that the original form was overly complicated, especially for borrowers who are sole proprietors or independent contractors and who do not have an accountant or lawyer on staff to help them. The EZ Application is available to borrowers who are self-employed with no employees, who did not reduce the pay of their employees by more than 25% and did not reduce employees’ hours, or who certify that they lost business due to COVID-19 and did not reduce employees’ pay by more than 25%. Borrowers who meet one of those requirements can use this streamlined three-page application, which requires fewer calculations and less documentation. Using this form, independent contractors with no employees who opt for the 24-week covered period can claim their full loan amount as forgivable owner-compensation replacement.
Form 3508S, the newest addition, was released by the SBA and Treasury in early October. This form is only one-anda-half pages and is available to borrowers with a total PPP loan amount of $50,000 or less. Similar to Form 3508EZ, it requires fewer calculations and less documentation than the full forgiveness form, though supporting documents that show how the loan was used must still be provided to lenders. The greatest benefit for borrowers who qualify to use this form is that they are exempt from the program rule that forgivable loan amounts will be reduced based on cuts in full-time-equivalent employees or in salaries or wages. This provides borrowers with flexibility, reflecting the understanding that very small businesses may have taken PPP loans with the intent of following the requirements for 100% forgiveness, but as the pandemic stretched on and their business continued to suffer, they were unable in every instance.
No matter which form borrowers use, they should talk with their lender throughout the process and ask questions about documentation and other requirements as soon as possible. Borrowers can apply for forgiveness at any time up to the maturity date of the loan, and some tax experts suggest waiting to see if Congress passes new stimulus measures. However, borrowers who don't apply within 10 months after the last day of their covered period will have to begin making loan payments to their PPP lender.