Yesterday, the Small Business Administration provided a simpler forgiveness application for PPP loans of $50,000 or less.
The key simplification? A borrower ignores changes in employee headcounts as well as changes in salaries or wages.
If you’re eligible to use the simpler PPP loan forgiveness form, you probably want to do so. The new 3508S application form makes things really easy.
Using Simple PPP Forgiveness Form
How easy, you ask?
Well, the form first asks for identifying information including your business name, contact information, tax identification number, and then the loan number and amount (see below.)
Then, the 3508S form asks the borrower to initial seven representations and certifications, including that the borrower:
- Isn’t asking for more forgiveness than the actual loan amount
- Used the PPP money for payroll costs to retain employees; business mortgage interest payments; business rent or lease payments; or business utility payments
- Spent at least 60% of the forgiveness amount on payroll
- Capped the owner payroll to the appropriate limit–probably the lower of either 2.5 months’ of 2019 compensation or $20,833.
Tip: You can grab a pdf copy of a filled-out form here: PPP-Loan-Forgiveness-Application-Form-3508S.
Only Hard Part of 3508S Application
The only hard part of the 3508S application? You still must collect and submit documentation of your spending.
For example, you’ll need to submit payroll documentation, such as reports from your payroll service, that shows you spent at least 60 percent of your PPP money on salary, wages, health insurance, state and local taxes and retirement benefits.
But if you have an outside service do your payroll processing? Yeah, that’ll be easy.
Let me note, too, that you’ll need to submit good documentation for the non-payroll costs you spent PPP money on.
For forgivable nonpayroll costs—mortgage interest, rent, and utilities—you’ll need receipts or cancelled checks. And you’ll need evidence—like a contract or agreement—showing your mortgage, rental agreement or utility services were in effect before February 15, 2020.
For a mortgage, you’ll also need a loan amortization schedule (to show the forgivable interest component of the loan payments).
Nitty Gritty Details on Nonpayroll Costs
Hopefully you won’t need to worry about nonpayroll costs. (I’ll explain why I say that in a minute.) But just because the documentation for nonpayroll spending is a little confusing, and some readers may need to include those costs, let me quote the actual instructions here for nonpayroll cost.
The 3508S instructions say that in order to include nonpayroll costs in the forgivable amount, borrowers need to supply “Documentation verifying existence of the obligations/services prior to February 15, 2020 and eligible payments from the Covered Period.”
Specifically, for mortgage and loans, a borrower submits a copy of the:
lender amortization schedule and receipts or cancelled checks verifying eligible payments from the Covered Period; or lender account statements from February 2020 and the months of the Covered Period through one month after the end of the Covered Period verifying interest amounts and eligible payments.
For rental or lease payments, a borrower submits a copy of the:
current lease agreement and receipts or cancelled checks verifying eligible payments from the Covered Period; or lessor account statements from February 2020 and from the Covered Period through one month after the end of the Covered Period verifying eligible payments.
Finally, for business utility costs, a borrower submits copies of:
invoices from February 2020 and those paid during the Covered Period and receipts, cancelled checks, or account statements verifying those eligible payments
Understanding the Covered Period Complication
One potential complication you can probably ignore: Borrowers who received their PPP loans before June 5, 2020 can look at spending over the eight weeks that follow funding of the PPP loan. (This is called an 8-week “covered period.”)
But most borrowers will want to use the standard 24 week spending window, or “covered period.”
A larger spending window makes accumulating enough spending to get full forgiveness easier.
The 24-week spending window probably means a borrower only needs to submit records from the payroll service. (The PPP loan provided roughly 10 weeks of payroll, which means businesses should have more than enough payroll spending within a 24 week window.)
Finally, if a borrower uses the 8 week spending window, the forgivable owner payroll drops to the lesser of 8 weeks’ worth of 2019 compensation for any owner-employee or self-employed individual/general partner or $15,385 per individual. (Compare this to the larger $20,833 limit for owners when a 24-week covered period.)
Final Thought on PPP Forgiveness Application
So here’s what I think you do if you borrowed $50,000 or less.
As soon as it’s been 24 weeks since you received your PPP money, apply for forgiveness. Probably you only need to submit the payroll reports from payroll service to show enough forgivable costs.
And that’ll let you get back to business.
Other Resources You May Find Useful
Detailed information about what costs count toward forgiveness: The Paycheck Protection Formula Explained and Illustrated.
Also let me mention that we’ve blogged a couple of times about how to manage through the Covid-19 pandemic: Post-pandemic Covid-19 Small Business Planning (which also explains how to grab a free copy of our business planning workbook and e-book) and then a long discussion of how Covid-19 closures are hurting and in some cases killing small businesses–and then how business owners can try to manage through this crisis.