Most small business clients who have borrowed Paycheck Protection Program (P3) loans have now spent their loan proceeds and are beginning the process of calculating loan cancellation eligibility. This process has unfortunately become much more complicated than initially imagined.
Fortunately, small business customers who are at their wit’s end might get some relief. In early October, the Small Business Administration (SBA) released a simplified loan forgiveness request for borrowers with smaller loans.
Customers who borrowed $ 50,000 or less are eligible and should be made aware of what this valuable option can (and cannot) do before proceeding any further in the request for forgiveness.
Calculate PPP loan forgiveness: the basics
Complex rules about how and when loan proceeds are spent apply in calculating P3 loan forgiveness eligibility. The original rules of the CARES Act required that the loan proceeds be used within eight weeks of the loan inception date. The Paycheck Protection Program Flexibility Act (PPPFA) extended the period from eight weeks to 24 weeks from the date the lender made the first loan payment to the small business owner.
To be eligible for loan cancellation, the bulk of the loan proceeds must be used to cover salary costs during the “covered period”. The product can also be used to cover certain non-salary expenses, including rent, mortgage interest, and utilities. The period covered for most small business clients will be a 24 week period beginning on the first day of the first pay period following receipt of loan proceeds. Borrowers who took out their loans before June 5, 2020 can choose to use an eight week period as the covered period.
Employers must maintain the same average number of employees during the period covered to be eligible for a loan forgiveness (the amount of a loan that can be forgiven will be prorated, not fully eliminated, for employers downsizing) . Reducing the compensation of employees earning less than $ 100,000 by more than 25% may also reduce the amount remitted.
The PPPFA gives employers until December 31, 2020 to get employees back to work and restore salary levels to continue to benefit from a loan discount.
Most loan forgiveness applicants are required to document the number of full-time employees employed between February 15, 2019 and June 30, 2019, compared to the same period in 2020, to determine the amount of their loan forgiveness. ready.
SBA Form 3508S: Relief for Small Loan Recipients
The SBA’s Simplified Loan Forgiveness Application is available to business owners who have borrowed $ 50,000 or less from P3 funds. The streamlined process is not available to business owners who, along with their affiliates, received $ 2 million or more under the program. Form 3508S is designed to make the process less confusing and time consuming for employers who have borrowed relatively small amounts.
Small loan borrowers will no longer be required to reduce the value of their loan forgiveness if they have reduced the salary or wages of an employee earning less than $ 100,000 during the period covered. Likewise, such borrowers will not be required to reduce the remitted amount if they have reduced their number of full-time equivalent employees during the period covered.
