June 18, 2020

New PPP Loan Forgiveness Application Released

On June 17^th, the Small Business Administration (SBA) released an updated loan forgiveness application including the long form (SBA Form 3508) and a new abbreviated version (Form 3850 EZ).  It was necessary to update them because of the modifications made by the PPP Flexibility Act of 2020. The EZ version of the application was developed to make it easier for sole proprietors and the self-employed to apply. The new applications now include information on the 24-week covered period, the requirement to spend 60% of loan funds on payroll expenses, and a new safe harbor for those who have not been able to return to pre-COVID-19 business levels because of state and local regulations. In addition, the applications are shorter than the prior version and are accompanied by separate instruction documents. To help clients, prospects, and others who have received a PPP loan, Wilson Lewis has provided a summary of key points below.

EZ Loan Forgiveness Application Highlights

Navigating loan forgiveness has been a challenge for many businesses and this new application is designed to make it as simple as possible. Unfortunately, not every borrower qualifies to use this forgiveness application. In fact, only those that meet one of the following criteria qualify:

1. A borrower must be a self-employed individual, independent contractor, or sole proprietor without employees at the time of loan application submission. They must not have included employee salaries in determining the average monthly payroll.
2. A borrower did not reduce annual salaries or wages of any employee by more than 25% during the covered period as compared to the period between January 1, 2020, and March 31, 2020. In addition, they must not have reduced the number of employees or average paid hours between January 1, 2020, and the end of the covered period.
3. A borrower did not reduce the annual salary or hourly wages of any employee by more than 25% during the covered period as compared to January 1, 2020 – March 31, 2020. In addition, they must not have been operating at the same level of business prior to February 15, 2020, due to COVID-19 guidelines.

Other Loan Forgiveness Application Highlights

In both application versions, there were a number of important changes made that borrowers need to be aware of when calculating the eligible forgiveness amount. They include:

• Covered Period Election – Borrowers that received a loan prior to June 5^th can elect if they want to retain the original 8-week covered period or transition to the new 24-week covered period.
• Expense Ratio – Updated information on the allowable expense ratio between payroll costs and non-payroll costs has been adjusted to reflect the lowered 60% requirement.
• FTE Reduction Exceptions – FTE reductions will not impact forgiveness under the following circumstances.
  • In situations where a good faith, a written offer was made to rehire an employee and where the borrower was unable to hire similarly qualified employees for unfilled positions before December 31, 2020.
  • Any instances when the borrower made a good faith written offer to restore reduction in hours, at the same salary or wages and the employee rejected the offer.
  • Finally, in situations when an employee was fired for cause, voluntarily resigned, or requested a reduction in hours during the covered period.
• FTE Reduction Safe Harbors – There are two safe harbors that prevent certain borrowers from receiving a forgiveness reduction from FTE employee levels.
  • A borrower is exempt from a forgiveness reduction when documentation is provided demonstrating the inability to operate at the same level of business activity because of federal, state, and local COVID-19 orders and guidelines.
  • A borrower is also exempt from a forgiveness reduction when both of the following conditions are met. First, they must have reduced FTE employee levels between February 15^th and April 25^th. Second, they must have restored FTE employee levels not later than December 31, 2020, to its FTE employee levels in the paid period that included February 15, 2020.

Contact Us

The new forgiveness applications and related instructions provide important direction and opportunities for Atlanta businesses. The new rules, exemptions, and safe harbors open the door to an increased loan forgiveness amount. Now is the time to review your situation and determine how you will be impacted. If you have questions about the information outlined above or need assistance with another PPP loan issue, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.