On June 5th, President Trump signed into law the Paycheck Protection Program (PPP) Flexibility Act. The Act made several important changes to the PPP program - a summary of the changes can be found here. Since then, updated guidance has been issued along with revised loan forgiveness applications. Read on to learn about the recent developments.
Loan Forgiveness Application
On June 16th, the SBA/Dept. of Treasury issued a final version of the revised loan forgiveness application – Form 3508 with accompanying Instructions. The revised application form and instructions incorporate changes brought about by the PPP Flexibility Act, including the 24-week covered period, 60% minimum payroll threshold and new full-time equivalent (FTE) retention exceptions.
Most notably, a new EZ Loan Application Form and Instructions were issued. The purpose of this new form is to simplify the reporting burden for borrowers who satisfy certain requirements. A borrower may use the EZ application if any of the following three criteria are met:
The borrower is a self-employed individual, independent contractor or sole proprietor who had no employees
The borrower did not reduce annual salary or hourly wages of any employee by more than 25% AND the borrower did not reduce FTEs
The borrower did not reduce annual salary or hourly wages of any employee by more than 25% AND was unable to fully operate due to compliance with government health protocols.
Loan Forgiveness Guidance
Additional guidance has been issued to include provisions of the PPP Flexibility Act. One of the most notable items pertains to early loan forgiveness.
Guidance indicates that borrowers may apply for loan forgiveness before the 24-week covered period ends. However, any employee wage reductions exceeding 25% must be applied over the entire 24-week period when figuring the reduction in loan forgiveness. This penalty may discourage some borrowers from applying early. Also, it’s still unclear how applying early will impact borrowers who reduced FTEs and don’t qualify for relief under the FTE reduction exceptions.
In light of this guidance, many are asking when they should apply for loan forgiveness. Based on what we know now, patience is the best course of action. The most compelling reasons to wait include:
Most banks are not ready to accept applications. Many are still developing platforms for loan application submission.
Further guidance may be issued to ease documentation requirements, especially for those who qualify to use the EZ Application.
Using the full 24-week covered period will allow borrowers to accumulate eligible costs, likely far exceeding the original loan amount. Any wage or FTE reductions will be applied to total eligible costs; thus a borrower could still receive full loan forgiveness even though cuts were made to wages and/or FTEs.
Loan payments will not begin until a decision has been made on loan forgiveness.
Haven’t yet applied for a PPP loan? You’re in luck. Recent legislation extended the application deadline to August 8, 2020.
Need help applying for a PPP loan or navigating PPP loan forgiveness? Let our dedicated PPP task force guide you through the process. Please give us a call for more information.