Applying for Loan Forgiveness: 7 Key Topics to Understand
Summary
A slide presentation on applying for PPP loan forgiveness, with an agenda listing 7 key topics to understand, the loan forgiveness application 3508 EZ, the revised loan forgiveness application, helpful tips, FAQs, resources and references. The key topics include the covered payroll period, cash compensation, owner-employee and self-employed salaries, FTE calculation, FTE reduction safe harbors 1 and 2 and exceptions, and eligible payroll and non-payroll costs. It explains that the covered period begins on the date loan proceeds are disbursed and ends 8 weeks (56) days from that date, or runs 24 weeks.
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“If you can dream it, you can achieve it.”
-Zig Ziglar
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APPLYING for LOAN FORGIVENESS
AGENDA
1. 7 KEY TOPICS TO UNDERSTAND
2. LOAN FORGIVENESS APPLICATION 3508 EZ
3. LOAN FORGIVENESS APPLICATION REVISED
4. HELPFUL TIPS
5. FAQ’s
6. RESOURCES
7. REFERENCES
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Slide 3
TJ2 Is it worth numbeting them?
Timothy Jeffcoat, 6/23/2020
7 Key Topics
7 Key Topics to Understand
1. Covered Payroll Period
2. Cash Compensation
3. Salaries for owner-employee/self-employed/general partners
4. FTE Calculation
5. FTE Reduction Safe Harbors 1 and 2
6. FTE Reduction Exceptions
7. Eligible Payroll and Non-Payroll Costs
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1. Covered and Alternative Covered Payroll Period
• Covered Period - begins on the date the loan proceeds are
disbursed and ends 8 weeks (56) days from that date. If 24 weeks, it
begins on the date the loan proceeds are disbursed and ends 24
weeks (168 days) from that date.
• Alternative Period – Borrowers with a bi-weekly or more frequent
payroll schedule may elect the Alternative Period. Example: If the
loan is disbursed on April 20 and the first day of the borrower’s first
pay period following the disbursement is April 26, then the first day
of the Alternative Payroll Period is April 26.
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2. Cash Compensation
For each individual employee, the total amount of cash compensation eligible for
forgiveness may not exceed an annual salary of $100,000, as prorated for the
Covered Period. For an 8-week Covered Period, that total is capped at $15,385
per employee. For a 24-week Covered Period, that total is capped at $46,154 per
employee.
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3. Owner-Employee/Self Employed/General Partner
If a 24-week Covered Period applies, for any owner-employee or self-employed
individual/general partner, salary is capped at $20,833 per individual; and • if the
Borrower has elected an 8-week Covered Period, for any owner-employee or self-
employed individual/general partner, salary capped at $15,385 per individual.
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4. Required FTE Calculation
For each employee, for the appropriate period (Covered or Alternative Covered):
1. Take the average number of hours paid per week, divide by 40, and round the total to
the nearest tenth.
• The maximum for each employee is capped at 1.0.
2. Or, simply assign a 1.0 for employees who work 40 hours or more per week and 0.5 for
employees who work fewer hours
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5a. FTE Reduction Safe Harbor 1
Provides a safe harbor from reductions in forgiveness, based on reductions in
full-time equivalent (FTE) employees, for borrowers that are unable to return to
the same level of business activity prior to February 15, 2020, due to compliance
with requirements/guidance between March 1, 2020 and December 31, 2020
by the:
• Secretary of Health and Human Services
• Director of the Centers for Disease Control and Prevention
• Occupational Safety and Health Administration, related to worker or
customer safety requirements related to COVID–19.
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5b. FTE Reduction Safe Harbor 2
• If the Borrower reduced its FTE employee levels in the period
beginning February 15, 2020, and ending April 26, 2020; and
• the Borrower then restored its FTE employee levels by not
later than December 31, 2020 to its FTE employee levels in
the Borrower’s pay period that included February 15, 2020
6. The Six FTE Reduction Exceptions
For any employees during the … Covered Period
1. the Borrower made a good-faith, written offer to rehire an employee, which was
rejected by the employee
2. were fired for cause
3. voluntarily resigned
4. voluntarily requested and received a reduction of their hours
5. Borrower made a good faith, written offer to restore any reduction in hours at the
same salary or wages, but the employee rejected.
6. Borrower was unable to hire similarly qualified employees for unfilled positions by
December 31, 2020.
• Any FTE reductions in these cases do not reduce the Borrower’s loan forgiveness
7a. What is ‘Payroll Cost’
Payroll costs consist of
• compensation to employees (whose principal place of residence is the United States) in the form
of salary, wages, commissions, or similar compensation; cash tips or the equivalent (based on
employer records of past tips or, in the absence of such records, a reasonable, good-faith
employer estimate of such tips);
• payment for vacation, parental, family, medical, or sick leave;
• allowance for separation or dismissal;
• payment for the provision of employee benefits consisting of group health care coverage,
including insurance premiums, and retirement;
• payment of state and local taxes assessed on compensation of employees;
• and for an independent contractor or sole proprietor,
• wage, commissions, income, or net earnings from self-employment or similar compensation.
7b. Summary of Eligible Costs - Payroll
• Payroll costs paid and payroll costs incurred during the eight-weeks (56-days) Covered Period or
24-weeks (168-days) Covered Period (cannot exceed December 31, 2020).
• Payroll costs are considered paid on the day that paychecks are distributed or the Borrower
originates an ACH credit transaction.
• Payroll costs are considered incurred on the day that the employee’s pay is earned.
• Payroll costs incurred but not paid during the Borrower’s last pay period of the Covered
Period are eligible for forgiveness if paid on or before the next regular payroll date.
• Otherwise, payroll costs must be paid during the Covered Period.
7c. Summary of Eligible Costs Non-Payroll
• Covered mortgage obligations:
• payments of interest (not including any prepayment or payment of principal) on any
business mortgage obligation on real or personal property incurred before February 15,
2020
• Covered rent obligations:
• business rent or lease payments pursuant to lease agreements for real or personal
property in force before February 15, 2020
• Covered utility payments:
• business payments for a service for the distribution of electricity, gas, water,
transportation, telephone, or internet access for which service began before February 15,
2020
• Eligible nonpayroll costs cannot exceed 40% of the total forgiveness amount.
• Count nonpayroll costs that were both paid and incurred only once.
PPP Forgiveness
Application 3508 EZ
Forgiveness Application 3508 EZ
• New Loan Forgiveness Application 3508EZ – 3 pages
• Separated into 3 sections: pages 1 and 2 must be submitted to the lender:
1. PPP Forgiveness Application (p 1)
2. Certification (p 2)
3. Borrower Demographics (p 3)
4. Instructions
This application is only for the following Borrowers:
• Self employed and have no employees
• Did not reduce the salaries or wages of their employees by more than 25%, and did not
reduce the number or hours of their employees; or
• 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%
The Application and Detailed Instructions forms are located on the SBA’s website at:
www.sba.gov/ppp under Loan Details and Forgiveness.
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Forgiveness Application 3508EZ
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Forgiveness Application 3508EZ
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Form 3508 EZ Certification
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Form 3508 EZ Certification
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Form 3508 EZ Certification
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PPP Forgiveness Application
Revised
PPP Loan Forgiveness Application Revised
• Revised Loan Forgiveness Application Revised – 5 pages
• Separated into 5 sections: pages 1 - 3 must be submitted to Lender:
1. PPP Forgiveness Application Calculation (p 1)
2. Certification (p 2)
3. Schedule A (p 3)
4. Schedule A worksheet (p 4)
5. Borrower Demographics (p 5)
6. Instructions
The Application and Detailed Instructions forms are located on the SBA’s website at:
www.sba.gov/ppp under Loan Details and Forgiveness.
Schedule A Worksheet &
Safe Harbor
Schedule A Worksheet
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Schedule A Worksheet
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Schedule A Worksheet
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PPP Forgiveness Application
Schedule A
Schedule A
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Schedule A
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Schedule A
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PPP Forgiveness Application
Calculation Form
Forgiveness Application Calculation
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Forgiveness Application Calculation
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Certification
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Certification
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Lender Responsibilities
When the Borrower Submits SBA Form 3508, SBA Form 3508EZ or Lender’s Equivalent Form:
• Confirm receipt of the borrower certifications contained in the SBA Form 3508, 3508EZ or lender’s
equivalent form.
• Confirm receipt of the documentation the borrower must submit to aid in verifying payroll and nonpayroll
costs as specified in the instructions to the SBA Form 3508, 3508EZ or lender’s equivalent form.
• Confirm the borrower’s calculations on the borrower’s SBA Form 3508, 3508EZ or lender’s equivalent form
by reviewing the documentation submitted with the SBA Form 3508, 3508EZ or lender’s equivalent form
• Confirm that the borrower made the calculation on Line 10 of the SBA Form 3508 (or Line 7 of Form 3508EZ)
or lender’s equivalent form correctly.
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Helpful Tips
“If I had nine hours to chop down a tree, I’d
spend the first six sharpening my ax.”
- Abraham Lincoln
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HELPFUL TIPS
You will need the……
• Loan Forgiveness Application
• Loan Forgiveness Application Instructions (please read carefully)
• Calculator
• Calendar
• Loan documents
• Supporting documentation
HELPFUL TIPS
Items to consider if you want to improve the forgiveness results:
• FTE Calculation method (remember there are 2 methods)
• The Two Safe Harbors
• The Six FTE Reduction Exceptions
• Alternative Covered Period
• Retain all of your documents for 6 years
The 7 Most Common FAQs
FAQ’s
1. Are advance payments of interest on mortgage obligations
eligible for loan forgiveness? No
2. What effect does a borrower’s reduction in employees’ salary or
wages have on the loan forgiveness amount? in excess of 25
percent will generally result in a reduction in the loan forgiveness
amount… the calculation is performed on a per employee basis, not
in the aggregate.
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FAQ’s Cont’d
3. How should borrowers, seeking loan forgiveness account for the
reduction based on a reduction in the number of employees …
…relative to the reduction relating to salary and wages …?
Example:
An hourly wage employee had been working 40 hours per week during the
borrower selected reference period (FTE employee of 1.0)
… the borrower reduced the hours to 20 hours per week during the covered period
(FTE employee of 0.5).
… there was no change to the employee’s hourly wage during the covered period.
Because the hourly wage did not change, the reduction in the employee’s total
wages is entirely attributable to the FTE employee reduction
Therefore, the borrower is not required to conduct a salary/wage reduction
calculation for that employee.
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FAQ’s Cont’d
4. Can the Borrower switch from the 8 weeks covered period to the
24 weeks covered period?
• Yes, but seek mutual agreement from the lender.
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FAQ’s Cont’d
5. What is the Loan Forgiveness Process…….
… complete and submit the Loan Forgiveness Application… to lender.
… The lender has 60 days to … issue a decision to SBA.
…SBA will deduct EIDL Advance Amounts from the forgiveness amount remitted to
the Lender…
If SBA determines … that the borrower was ineligible … the loan will not be eligible
for loan forgiveness.
In the case, the lender is responsible for notifying the borrower...
If only a portion of the loan is forgiven, or if the forgiveness request is denied, any
remaining balance … must be repaid … on or before the five-year maturity or two-
year maturity of the loan.
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FAQ’s Cont’d
6. What effect does a reduction in a borrower’s number of FTE employees have on the
loan forgiveness amount?
• The borrower must first select a reference period:
(i) February 15, 2019 through June 30, 2019;
(ii) January 1, 2020 through February 29, 2020;
(iii) in the case of a seasonal employer, either of the two preceding methods or a consecutive 12-
week period between May 1, 2019 and September 15, 2019.
• If the average number of FTE employees during the… covered period … is less than during the
reference period, the total eligible expenses available for forgiveness is reduced proportionally…
• For example, if a borrower had 10 FTE employees during the reference period and this declined to
8 FTE employees during the covered period, the percentage… declined by 20 percent and thus
only 80 percent… (is) available for forgiveness.
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FAQ’s Cont’d
7. Can the borrower apply for loan forgiveness before the end of
the Covered Period?
Yes. A borrower may submit a loan forgiveness application any time
on or before the maturity date of the loan – including before the end
of the covered period – if the borrower has used all of the loan
proceeds for which the borrower is requesting forgiveness. If the
borrower applies for forgiveness before the end of the covered period
and has reduced any employee’s salaries or wages in excess of 25
percent, the borrower must account for the excess salary reduction
for the full 8-week or 24-week covered period.
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SBA Resources
Texas Gulf Coast WBEA Women’s Business Houston SCORE
Small Business Center (WBC)
Development Center (SBDC)
713-752-8444 713-681-9232 713-487-6565
www.sbdc.uh.edu www.wbea- www.houston.score.org
texas.org/womens-business-
center
For EIDL Loan Applicants Houston District Office - SBA Other SBA District Offices
• 1-800-659-2955 • 713-773-6500 www.sba.gov/about-sba/sba-
• (TTY: 1-800-877-8339) locations
• Houston@sba.gov
• e-mail
disastercustomerservice@sb • Twitter: @SBA_Houston
a.gov
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References and Guidance
• IFR 136/Borrower (5/22/2020)
https://home.treasury.gov/system/files/136/PPP-IFR-Loan-
Forgiveness.pdf
• HR7010 - ‘Paycheck Protection Program Flexibility Act of 2020’
(6/5/2020) https://www.congress.gov/bill/116th-congress/house-
bill/7010
• 19th IFR – 13 CFR Part 120 (6/17/2020)
https://home.treasury.gov/system/files/136/PPP-IFR--Revisions-to-the-
Third-and-Sixth-Interim-Final-Rules.pdf
• 20th IFR – 13 CFR Part 120 (6/22/2020)
https://home.treasury.gov/system/files/136/PPP--IFR--Revisions-to-
Loan-Forgiveness-Interim-Final-Rule-and-SBA-Loan-Review-
Procedures-Interim-Final-Rule.pdf
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“ Do what you can, with what you have, where you
are.” - Theodore Roosevelt
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