Overview of the PPP Loan Forgiveness Process (SBA file date: December 28 2020)
Summary
This SBA slide presentation (SBA file date December 28 2020) gives an overview of the PPP loan forgiveness process and states that the SBA cannot give specific advice. It covers seven key topics, including the 8-week (56-day) or 24-week (168-day) Covered Period, cash compensation capped at $15,385 per employee for 8 weeks and $46,154 for 24 weeks, the FTE calculation, two safe harbors and six FTE reduction exceptions, and non-payroll costs that cannot exceed 40% of the forgiveness amount. It walks through forgiveness forms 3508S, for loans of $50,000 or less, 3508EZ and the revised 3508. Lenders have 60 days to submit a decision and the SBA has 90 days to remit forgiveness funds, and the EIDL advance is deducted from the forgiveness amount. Borrowers that, with their affiliates, received loans of $2 million or greater must complete a Loan Necessity Questionnaire (SBA Form 3509 or 3510).
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Full text
This is only an overview of the PPP Loan Forgiveness process.
The SBA cannot give you specific advice.
You should understand the instructions for yourselves.
You may want to consult with an accountant, consultant or an advisor.
Agenda
• 7 Key Topics to Understand
• Loan Forgiveness Applications
• 3508S
• 3508EZ
• Revised
• Helpful Tips
• FAQs
• SBA Resources
7 Key Topics
to Understand
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 August 20 and the first day of the borrower’s
first pay period following the disbursement is August 26, then the
first day of the Alternative Payroll Period is August 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.
• Excludes owner-employees who own less than 5% of C-Corp. or S-Corp.
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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.
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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.
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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.
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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.
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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 non-payroll costs cannot exceed 40% of the total forgiveness amount.
• Count non-payroll costs that were both paid and incurred only once.
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7c. Summary Eligible Costs Non-Payroll
1. If a borrower is renting a space, and they sublease a portion of the space, the borrower can only
claim the net rent expense. In other words, if the rent is $7,000 per month, and they sublease for
$3,000 per month; they can only claim $4,000 for non-payroll expenses.
2. If a borrower has a mortgage on the building, and they lease 25% of the fair market value of the
building, they can only claim 75% of the mortgage expense for forgiveness.
3. If the borrower shares the space with another business, they must prorate the rent and utility
payments in the same manner as on the borrower’s 2019 tax filings, or if a new business, the
borrower’s expected 2020 tax filings.
4. If the borrower is paying rent to a real estate holding company (which they own), the borrower can
only claim that portion of rent that does not exceed the monthly interest payments on the loan, for
the covered period.
5. If the borrower works out of their home, they can only include that portion of non-payroll expenses
(for the covered period) that were deductible on the borrower’s 2019 tax filings, or for a new
business, the borrower’s expected 2020.
https://home.treasury.gov/system/files/136/PPP--IFR--Treatment-Owners-Forgiveness-Certain-Nonpayroll-Costs.pdf
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PPP Forgiveness
Applications
3508S and 3508EZ
PPP Forgiveness Application 3508S
• New Loan Forgiveness Application 3508S – 2 pages
• Separated into 2 sections: page 1 must be submitted to the lender:
1. PPP Forgiveness Application & Certification (p 1)
2. Borrower Demographics (p 2)
3. Instructions
This application is only for the following Borrowers:
• PPP loan amount of $50,000 or less
• A Borrower that, together with its affiliates, received PPP loans totaling $2
million or greater cannot use this form
www.sba.gov/ppp under “Loan Details and Forgiveness
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19
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PPP Forgiveness Application 3508EZ
• New Loan Forgiveness Application 3508EZ – 3 pages
• Separated into 2 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%.
www.sba.gov/ppp under “Loan Details and Forgiveness
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PPP Forgiveness Application 3508EZ
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PPP 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
www.sba.gov/ppp under Loan Details and Forgiveness.
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Schedule A Worksheet
Schedule A Worksheet
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Schedule A Worksheet
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Schedule A Worksheet
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Schedule A
Schedule A
34
Schedule A
35
Schedule A
36
Application
Calculation Form
Application Calculation Form
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Application Calculation Form
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Certification
40
Certification
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Loan Forgiveness Submission Process
• As of August 10, Lenders can begin submitting Loan Forgiveness Applications to the SBA.
• Once the Loan Forgiveness Application is received, the Lender has 60 days to submit a decision to the SBA,
using the SBA’s Payroll Protection Forgiveness Platform.
• The SBA has 90 days to make a decision and remit the forgiveness funds to the lender.
• If the SBA determines that the borrower was ineligible, the loan will not be eligible for loan forgiveness. In this
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.
• The EIDL advance will be deducted from the PPP Loan Forgiveness amount.
• Payments are deferred for borrower payments of principal, interest, and fees on PPP
loans to the date that SBA remits the borrower’s loan forgiveness amount to the lender
• or, if the borrower does not apply for loan forgiveness, 10 months after the end of
the borrower’s loan forgiveness covered period
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Loan Necessity Questionnaire
• SBA will review all PPP loans to Borrowers that, together with their
affiliates, received loans of $2 million or greater, for loan necessity.
• Each of these Borrowers must complete a Loan Necessity Questionnaire
and submit it, along with the required supporting documents, to the Lender
servicing the Borrower’s PPP loan.
• For-Profit Borrowers will be required to complete the For-Profit
Questionnaire (SBA Form 3509).
• Non-Profit Borrowers will be required to complete the Non-Profit
Questionnaire (SBA Form 3510).
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Lender Responsibilities
When the Borrower Submits SBA Form 3508, SBA Form 3508EZ, SBA Form
3508S or Lender’s Equivalent Form:
• Confirm receipt of the borrower certifications contained in the SBA Form 3508, 3508EZ, 3508S
or lender’s equivalent form.
• Confirm receipt of the documentation the borrower must submit to aid in verifying payroll and
non-payroll costs as specified in the instructions to the SBA Form 3508, 3508EZ, 3508S 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,
3508S 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
Helpful Tips
You will need the……
• Loan Forgiveness Application
• Loan Forgiveness Application Instructions (please read carefully)
• Calculator
• Calendar
• Loan documents
• Supporting documentation
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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 your documents for six years
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Frequently
Asked
Questions
Frequently Asked Questions (FAQs)
• Are advance payments of interest on mortgage obligations
eligible for loan forgiveness?
• No
• What effect does a borrower’s reduction in employees’ salary or
wages have on the loan forgiveness amount?
• If the reduction is in excess of 25% it will generally result in a reduction in the loan
forgiveness amount. The calculation is performed on a per employee basis, not in the
aggregate.
• If I use the Form 3508S application, will I have to complete an
FTE or salary/hourly wage reduction calculation?
• No
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Frequently Asked Questions (FAQs)
• 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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Frequently Asked Questions (FAQs)
• Can the Borrower switch from the 8 weeks covered period to the 24
weeks covered period?
• Yes
• When can lenders begin submitting Loan Forgiveness Applications to
the SBA?
• Beginning August 10th.
• Are payments deferred? Yes
• Payments are deferred for borrower payments of principal, interest, and fees on PPP
loans to the date that SBA remits the borrower’s loan forgiveness amount to the lender
• or, if the borrower does not apply for loan forgiveness, 10 months after the end of
the borrower’s loan forgiveness covered period
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Frequently Asked Questions (FAQs)
• 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 (or)
(ii) January 1, 2020 through February 29, 2020 (or)
(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% and thus only 80% is
eligible for forgiveness.
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Frequently Asked Questions (FAQs)
• 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 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%, the borrower must account for the excess
salary reduction for the full 8-week or 24-week covered period.
https://www.sba.gov/document/support-frequently-asked-questions-ppp-loan-forgiveness
Https://www.sba.gov/document/support--faq-lenders-borrowers
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SBA
Resources
SBA Resources
WBEA Women’s Business Center
Texas Gulf Coast Small Business (WBC) Houston SCORE
Development Center (SBDC)
713-681-9232 713-487-6565
713-752-8444 www.wbea-texas.org/womens- www.houston.score.org
www.sbdc.uh.edu business-center
For EIDL Loan Applicants Houston District Office SBA
Other SBA District Offices
1-800-659-2955 713-773-6500
TTY: 1-800-877-8339 www.sba.gov/tx/houston www.sba.gov/about-sba/sba-
Email: Email: houston@sba.gov locations
disastercustomerservice@sba.gov Twitter: @SBA_Houston
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This is only an overview of the PPP Loan Forgiveness process.
The SBA cannot give you specific advice.
You should understand the instructions for yourselves.
You may want to consult with an accountant, consultant or an advisor.
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