Best Practices: Which SBA PPP Loan Forgiveness Application Form Should Be Completed?

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), was signed into law, and the Paycheck Protection Program (“PPP”) was included as part of that legislation.  The initial PPP Loan Forgiveness Application, the SBA Form 3508, was issued on May 15, 2020, requiring all documentation to support the borrower’s payroll and non-payroll costs and full-time equivalency be submitted with the application.

On June 5, 2020, the Paycheck Protection Program Flexibility Act of 2020 (the “Flexibility Act”) was signed into law.  Shortly after that, the SBA Form 3508 was revised to reflect the change in PPP loan terms contained in the Flexibility Act and an additional PPP Loan Forgiveness Application, the SBA Form 3508EZ, which could be completed by PPP borrowers meeting certain requirements, was also released.  Payroll and non-payroll cost documentation still needs to be submitted with the SBA Form 3508EZ, but the borrower will not have to submit the PPP Schedule A or any full-time equivalency documentation with the application.  

On October 8, 2020, the SBA released an even simpler version of the PPP Loan Forgiveness Application, the SBA Form 3508S, meant to make it easier for those with smaller PPP loans to obtain forgiveness.  The SBA Form 3508S requires fewer calculations, less documentation be provided, and borrowers who are qualified to submit this Form are exempt from reductions in loan forgiveness amounts based on reductions in full-time equivalent employees or in salaries or wages.

Below you will find a summary to help parties figure out which PPP Loan Forgiveness Application should be completed.

SBA Form 3508S

• Borrower:
  • received a PPP loan of $50,000 or less, AND
  • together with its affiliates, didn’t receive PPP loans totaling $2,000,000 or more.

SBA Form 3508EZ

• • Borrower is a self-employed individual, independent contractor, or sole proprietor who had no employees at the time of the PPP loan application and didn’t include any employee salaries in the computation of average monthly payroll in the application form;

OR

• • Borrower:
  • didn’t reduce annual salary or hourly wages of any employee by more than 25% during Covered Period/Alternative Payroll Covered Period compared to period between January 1, 2020 and March 31, 2020, AND
  • didn’t reduce the number of employees or the average paid hours of employees between January 1, 2020 and the end of the Covered Period (taking into account the available safe harbor exemptions for: (a) reductions that arose from borrower’s inability to (i) rehire individuals who were employees on February 15, 2020 and (ii) hire similarly qualified employees for those unfilled positions on or before December 31, 2020, or (b) reductions in an employee’s hours that the borrower offered to restore and the employee refused).

OR

• • Borrower:
  • didn’t reduce annual salary or hourly wages of any employee by more than 25% during the Covered Period/Alternative Payroll Covered Period compared to the period between January 1, 2020 and March 31, 2020, AND
  • was unable to operate during the Covered Period at the same level of business activity as before February 15, 2020 due to compliance with maintenance of standards of sanitation, social distancing, or other COVID-19 work or customer safety requirements established or guidance issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration between March 1, 2020 and December 31, 2020.

SBA Form 3508

• • All borrowers who do not qualify to file either the SBA Form 3508EZ or 3508S.

No matter which loan forgiveness form a borrower completes, the borrower should retain all records relating to the PPP loan, including documentation supporting the borrower’s application certifications and material compliance with PPP requirements, for six years after the date the loan is forgiven or repaid in full.

For more information concerning PPP loan forgiveness, contact the attorneys at Starfield & Smith, PC at 215.542.7070.