When the U.S. Small Business Administration (SBA) launched the Paycheck Protection Program, the emergency lending initiative was a lifeline for enterprise homeowners making an attempt to navigate COVID and all of the coronavirus-related modifications (like social distancing) that have been (and are) negatively impacting their small companies.
Not solely did PPP loans get companies the funds they wanted to maintain their companies transferring ahead in the course of the pandemic, but when debtors used the mortgage proceeds on eligible bills in the course of the 24-week lined interval (the lined interval was initially solely eight weeks, lined, however the Paycheck Protection Program Flexibility Act, which was signed into legislation in early June, prolonged the lined interval to 24 weeks), as much as 100% of their PPP mortgage quantity could be eligible for mortgage forgiveness.
As 2020 attracts to a detailed, many companies are nearing the top of the lined interval. But not all PPP loans are routinely forgiven; in an effort to qualify for forgiveness, enterprise homeowners might want to submit a PPP mortgage forgiveness utility.
But with three completely different purposes out there—SBA Form 3508, SBA Form 3508EZ, and SBA Form 3508S—the query is, which forgiveness utility type is the right type for your corporation?
PPP mortgage forgiveness necessities
Before we bounce into mortgage forgiveness utility types (and how you can decide which type is true for your corporation), let’s shortly evaluation the necessities for PPP mortgage forgiveness.
Eligibility necessities for PPP mortgage forgiveness embody:
- The PPP mortgage quantity was used to cowl authorised bills. Forgivable bills embody eligible payroll prices (together with worker salaries/worker wages, sick go away, employer contributions to retirement plans, and worker medical health insurance) and authorised nonpayroll prices (together with utility funds, lease funds, and enterprise mortgage curiosity funds).
- The mortgage proceeds have been used to cowl bills in the course of the lined interval. Again, solely bills that companies incur in the course of the 24-week interval after mortgage origination are eligible for forgiveness. (Businesses which have irregular payroll schedules, like companies with seasonal workers, might qualify for an Alternative Payroll Covered Period, which might start the primary payroll date following PPP mortgage disbursement.)
- At least 60 p.c of mortgage funds have been used for payroll prices. In order to qualify for the total mortgage forgiveness quantity, companies should use not less than 60 p.c of the overall PPP mortgage to cowl eligible payroll prices (the opposite 40 p.c can be utilized to cowl eligible nonpayroll prices).
In addition, in an effort to qualify for the total mortgage forgiveness quantity, companies should keep their workforce, which incorporates:
- Maintain their variety of full-time equal workers (FTEs); and
- Maintain worker compensation for his or her employees that’s in step with pre-COVID compensation ranges
Businesses that lowered their variety of workers or worker compensation may have their quantity of mortgage forgiveness lowered proportionately.
There are exemptions for sure companies which have needed to decrease worker headcount; for instance, beneath the FTE Reduction Safe Harbor, companies have till December 31, 2020 to revive their workforce earlier than dealing with lowered mortgage forgiveness—and extra FTE exemptions handed with the Paycheck Protection Program Flexibility Act permit employers to qualify for full mortgage forgiveness if they’ll doc in good religion that they’re unable to return to their normal degree of enterprise exercise resulting from COVID-19 security protocols or they’re unable to rehire former workers and is unable to seek out certified employees to fill open positions—even when the enterprise is unable to revive their workforce by the December deadline.
PPP mortgage forgiveness purposes—and figuring out which utility is the fitting match for your corporation
Now that you just perceive how you can qualify for PPP mortgage forgiveness, let’s cowl the precise forgiveness course of—and, extra particularly, the completely different mortgage forgiveness purposes.
There are three completely different types PPP debtors can use to use for mortgage forgiveness: SBA Form 3580S, SBA Form 3508EZ, and SBA Form 3508.
SBA Form 3580S
In early October, SBA Form 3580S was launched particularly for debtors with PPP loans of $50,000 or much less. Under the brand new interim ultimate rule, debtors who acquired $50,000 or much less in PPP mortgage funds are exempt from mortgage forgiveness reductions resulting from a discount in FTEs or worker salaries or hourly wages.
Under this rule, debtors {that a}) acquired a PPP mortgage of $50,000 or much less, and b) spent their mortgage proceeds on certified bills routinely qualify for full mortgage forgiveness.
(The solely exception to this rule is that if the enterprise is affiliated with different companies. In that scenario, the overall PPP loans throughout all affiliated companies cannot exceed $2 million; if it does, the enterprise cannot use type 3580S—even when their particular person PPP mortgage was for $50,000 or much less.)
SBA Form 3580S is the simplest and streamlined of the mortgage forgiveness purposes—and the best for debtors to finish and submit.
SBA Form 3508EZ
SBA Form 3508EZ is for debtors with PPP mortgage quantities of greater than $50,000—and, much like Form 2508S, it’s a shorter, extra streamlined utility with fewer calculations than the total mortgage forgiveness utility, SBA Form 3508.
In order for companies to be eligible for SBA Form 3508EZ, they need to meet one of many three following requirements:
- The borrower is a self-employed particular person, impartial contractor, or sole proprietor who had no workers on the time of the PPP mortgage utility;
- The borrower didn’t scale back annual wage or hourly wages of any worker making lower than $100,000/12 months by greater than 25 p.c in the course of the Covered Period or the Alternative Payroll Covered Period AND the borrower didn’t scale back worker headcount; or
- The borrower didn’t scale back annual wage or hourly wages of any worker making lower than $100,000/12 months by greater than 25 p.c in the course of the Covered Period or the Alternative Payroll Covered Period AND the borrower was unable to function on the similar degree of enterprise exercise resulting from compliance with COVID-related steerage and/or necessities
Businesses that qualify for SBA Form 3508EZ don’t should undergo the method of filling out a Schedule A worksheet.
SBA Form 3508
All different debtors—together with debtors who lowered worker headcount and need to qualify for an exemption beneath the FTE Safe Harbor and self-employed people, sole proprietors, impartial contractors who don’t meet the necessities for Form 3508EZ—might want to fill out the unique mortgage forgiveness utility, SBA Form 3508.
SBA Form 3508 is probably the most complete of the three mortgage forgiveness purposes and requires candidates to finish the Schedule A worksheet, which outlines bills and calculates reductions to FTEs and worker salaries/wages.
Keep in thoughts that, relying in your utility and the way your PPP mortgage funds have been used, it’s possible you’ll must submit supporting documentation to your lender (for instance, payroll tax filings, cost receipts, account statements, tax types, and/or cancelled checks) in an effort to qualify for mortgage forgiveness.
Submit your mortgage forgiveness utility and get your PPP mortgage forgiven
Navigating the PPP mortgage forgiveness utility course of can really feel overwhelming—significantly as a result of there are three completely different purposes. But now that you just perceive the variations between SBA Form 3508, SBA Form 3508EZ, and SBA Form 3508S, you’re armed with the data you want to select, full, and submit the fitting utility for your corporation—and get the ball rolling in your mortgage forgiveness course of.
