Numerous changes have been made to the Paycheck Protection Program (PPP) in recent months, primarily stemming from the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Economic Aid Act) signed into law in December 2020 as part of the overall Consolidated Appropriations Act, 2021, and related administrative rules and guidance issued by the Small Business Administration (SBA). In this article, we address frequently asked questions and guidance regarding new PPP loan forgiveness rules and requirements.
Are there new covered costs that are eligible for loan forgiveness?
Yes. The Economic Aid Act and the new IFR expand the costs that are eligible for forgiveness. New covered costs include the following:
- Covered Operations Expenditure
- Covered Property Damage Costs
- Covered Supplier Costs
- Covered Worker Protection Expenditures
For descriptions of what these new categories include, see our article “FAQs on PPP First Draw Loans.” All Borrowers may receive forgiveness for these expanded covered costs, including those who received their loans prior to December 27, 2020, as long as those loans have not already been forgiven.
Note that while there are new expenses eligible for loan forgiveness, Borrowers seeking forgiveness must still use 60 percent of the loan proceeds on covered payroll costs, as set forth under previous PPP rules. Additionally, Borrowers filing for an Employee Retention Credit must remember that payroll costs qualified wages used to determine the Employee Retention Credit are not eligible for forgiveness for First Draw or Second Draw Loans. In other words, a Borrower may not receive forgiveness for payroll costs for which the Borrower will also receive a tax credit.
What is the Covered Period for forgiveness for First Draw and Second Draw Loans?
Generally speaking, payroll costs paid or incurred during the Covered Period are eligible for forgiveness. The “Covered Period” is the period beginning on the date the Lender disburses the loan and ends on the date elected by the Borrower that occurs during the period (i) beginning on the date that is 8 weeks after date of disbursement, and (ii) ending on date that is 24 weeks after the date of disbursement.
Nonpayroll costs are eligible for forgiveness if they were (i) paid during the Covered Period; or (ii) incurred during the Covered Period and paid on or before the next regular billing date, even if the billing date is after the Covered Period.
The Covered Periods for First Draw and Second Draw loans cannot overlap, and a Borrower must use all loan proceeds received from a First Draw loan for eligible expenses before a Second Draw Loan may be disbursed.
Is my EIDL advance still deducted from my loan forgiveness amount?
No. This provision of the CARES Act was repealed under the Economic Aid Act. If a Borrower received an EIDL advance, the SBA is no longer required to deduct the amount of the EIDL advance from the forgiveness amount. If any EIDL advance amount has been previously deducted from a Borrower’s forgiveness amount, it will be remitted to the Lender together with interest to the remittance date.
What is the loan forgiveness process?
The Borrower may submit the Forgiveness Application any time on or before the maturity date of the loan as long as the Borrower has used all of the loan proceeds for which it is requesting forgiveness. The Forgiveness Application and any required additional documentation should be submitted to the Lender servicing the PPP loan. If the Forgiveness Application is not submitted within 10 months following the last day of the maximum Covered Period (24 weeks), the Borrower will need to begin paying principal and interest in accordance with the loan documents.
For Borrowers with loans of $150,000 or less
Those with a PPP loan of $150,000 or less should use the simplified Forgiveness Application – SBA Form 3508S (linked at the end of this article). The simplified form requires fewer calculations and less documentation for eligible Borrowers and does not require Borrowers to show the calculations used to determine the loan forgiveness amount. However, it is important to keep in mind that even though Borrowers with loans of $150,000 or less may and should use the simplified form, the SBA may still request additional documentation and information to review loan forgiveness calculations as part of its audit and review procedures. Therefore, it is important to maintain accurate calculation documentation and records.
This form may be used to apply for forgiveness of a First Draw or Second Draw Loan, however, each loan must use a separate Forgiveness Application form (i.e., Borrowers who have both a First Draw and Second Draw Loan of $150,000 or under cannot combine them on one Forgiveness Application form).
When submitting the Forgiveness Application, Borrowers will also need to provide documentation establishing that they meet the 25 percent revenue reduction threshold (unless such documentation was provided at the time of the loan Application), which may include relevant tax forms or copies of quarterly income statements or bank statements. Note that when applying for forgiveness for a Second Draw Loan, Borrowers must certify that they used all First Draw Loan proceeds on eligible expenses prior to disbursement of the Second Draw Loan.
For Borrowers with loans of more than $150,000
Borrowers who received a Second Draw Loan of more than $150,000 must submit the Forgiveness Application for the First Draw Loan before or at the same time as the Forgiveness Application for the Second Draw Loan. This applies even if the calculated forgiveness amount of the First Draw Loan is zero.
I received a PPP loan of $50,000. Am I exempt from a reduction in the loan forgiveness amount?
Yes. Borrowers with PPP loans of $50,000 or less are exempt from any reduction of the loan forgiveness amount due to penalties for reductions in full-time equivalent employees or reductions in employee salary or wages that would otherwise be applicable. This excludes any Borrower that together with its affiliates received (i) First Draw Loans totaling $2 million or more, or (ii) Second Draw Loans totaling $2 million or more.
Below are useful links to necessary forms. Forms and additional guidance can be found on the SBA and Department of Treasury’s websites. We have also included links below to our other articles in this series.
- PPP Loan Forgiveness Application Form 3508S
- Loan Forgiveness Application Form 3508
- Loan Forgiveness Application Form 3508EZ
- SBA’s IFR on Loan Forgiveness Requirements and Loan Review Procedures