SBA Releases New Guidance and Revised Loan Forgiveness Applications

June 18, 2020

SBA Releases New Guidance and Revised Loan Forgiveness Applications

The SBA and the Treasury Department recently released guidance and new applications implementing the Paycheck Protection Program Flexibility Act (PPPFA) that was signed into law on June 5.  The SBA initially made revisions to its first interim final rule to reflect the new law provisions and other changes. Those updates include new PPP loan terms and deferral period, an extended 24-week covered period, a reduced 60% payroll forgiveness threshold and exemptions based on employee availability and salary restorations by December 31, 2020. The first interim final rule was also revised to shorten the PPP eligibility time frame of 20% owners who have been convicted of certain felonies from five years to one year. Importantly, the revisions clarify the “cliff” concerns that were raised following enactment of the PPPFA. Partial forgiveness is permitted if less than 60% of the proceeds are used for payroll costs.  

In other interim rule amendments, the SBA clarified that “the amount of loan forgiveness can be up to the full principal amount of the loan plus accrued interest.” Important information on calculation of payroll costs and owner replacement income was also provided.

Payroll costs: For borrowers with employees and who elect to use the 24-week covered period, payroll costs include salary, wages and tips up to $100,000 of annualized pay per employee (maximum $46,154 per individual), as well as covered benefits including health care, retirement contributions and state taxes imposed on employee payroll and paid by the employer (i.e., unemployment insurance premiums).  Payroll costs remain capped at $15,385 per individual for borrowers who elect to use the eight-week covered period.

Owner compensation replacement: The SBA and Treasury “[have] determined that it is appropriate to limit the forgiveness of owner compensation replacement for individuals with self-employment income who file a Schedule C or F to either eight weeks’ worth (8/52) of 2019 net profit (up to $15,385) for an eight-week covered period or 2.5 months’ worth (2.5/12) of 2019 net profit (up to $20,833) for a 24-week covered period per owner in total across all businesses.”   

The SBA also released new borrower application forms (the PPP loan application deadline remains June 30, 2020) and two versions of the PPP forgiveness application forms: a revised Form 3508 and simplified Form 3508EZ that requires fewer calculations and less documentation for eligible borrowers. For both forgiveness applications, borrowers may elect to use the eight-week covered period (for loans made before June 5) or the extended 24-week covered period.

The simplified Form 3508EZ applies to borrowers who (1) are self-employed and have no employees, OR (2) did not reduce the salaries or wages of their employees by more than 25%, and did not reduce the number of employee hours, OR (3) experienced reductions in business activity as a result of health directives related to COVID-19, and did not reduce the salaries or wages of their employees by more than 25%.

Marks Paneth will continue to monitor developments and will provide updates as they become available. Contact your Marks Paneth advisor if you need additional information or assistance or email responseteam@markspaneth.com.

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