If you received a Paycheck Protection Program loan for less than $150,000, your forgiveness process just got easier. On January 19, 2021, the Small Business Administration (SBA) released an updated PPP Loan Forgiveness Application Form 3508S which requires fewer calculations and less documentation from borrowers.
Here’s what PPP borrowers need to know about this simplified forgiveness application.
What is Form 3508S?
There are three forms that borrowers can use when applying for forgiveness.
Alternatively, Form 3508S simply asks you to:
- Provide the amount you spent on payroll
- Provide the forgiveness amount you’ve requested
- Certify the conditions via initials and signatures
This makes Form 3508S the simplest forgiveness application form.
While your application is being reviewed, both your lender and the SBA can request supporting documentation for accuracy. Penalties for knowingly making a false statement to obtain forgiveness include up to 30 years imprisonment and fines of up to $1 million.
Who can use Form 3508S?
If your PPP loan amount was less than $150,000, you can use the forgiveness Form 3508S. However, you are ineligible to use Form 3508S if your business has a contract or agreement of affiliation with other businesses and the PPP loan total across all affiliates is greater than $2 million.
Any business type can use Form 3508S, from contractors to corporations.
What will I be certifying?
When filling out this new application form, there are seven total representations and certifications the borrower must verify:
The amount requested is not greater than the PPP loan amount, was used to cover eligible costs for forgiveness, includes eligible payroll costs of at least 60% of the loan forgiveness amount, and was used within the covered period
The government will pursue recovery of loan amounts if they were knowingly used for unauthorized purposes
The borrower accurately verified all payroll and non-payroll costs that make up the forgiveness amount requested
The borrower will provide the required documents verifying all costs and that the existence of any rent, lease, mortgage, or utilities were in place prior to February 15, 2020
The information provided in the application and supporting documentation is true in all material ways
Any tax documents provided are accurate and consistent with what has been or will be provided to the IRS
The borrower acknowledges that additional information may be requested by the SBA and a failure to provide the information will result in a denial of the forgiveness application
What documents will I need to provide?
You do not need to submit any documentation when applying for forgiveness using form 3508S. However, the SBA can request any of the following to verify your approved forgiveness amount:
Verifying your payroll expenses:
Bank account statements or a report from your payroll provider documenting payments to employees
Tax forms (or equivalent payroll provider reports) including:
Payroll tax filings reported (typically Form 941)
State quarterly business and individual employee wage reporting
Unemployment insurance tax filings
Payment receipts, cancelled checks, or bank account statements showing employer contributions to group employee benefits plans
Verifying your non-payroll expenses:
Business mortgage interest payments: a copy of the amortization schedule with corresponding receipts OR mortgage statements from February 2020 and the months of the covered period.
Business rent or lease payments: a copy of the current rent/lease agreement with receipts verifying payments OR lease statements from 2020 and from the covered period through one month after the end of the covered period.
Business utility payments: a copy of invoices from February 2020 and those paid during the covered period with corresponding receipts or account statements.
Covered operations expenditures: a copy of invoices, orders, or purchase orders paid during the covered period with corresponding receipts or account statements.
Covered property damage costs: a copy of invoices, orders, or purchase orders paid during the covered period with corresponding receipts or account statements. Documentation will need to be provided to prove that the costs were related to property damage and vandalism or looting due to public disturbances that occurred during 2020 and were not covered by insurance or other compensation.
Covered supplier costs: a copy of contracts, orders, or purchase orders in effect at any time before the covered period (except for perishable goods), copy of invoices, orders, or purchase orders paid during the covered period with corresponding receipts or account statements.
Covered worker protection expenditures: a copy of invoices, orders, or purchase orders paid during the covered period with corresponding receipts or account statements. Documentation will need to be provided that proves that the expenditures were used by the borrower to comply with applicable COVID-19 guidance during the covered period.
If you are a sole proprietor, contractor, or self-employed, you are eligible to take owner compensation replacement (OCR). If you are taking OCR, you will have to provide your 2019 or 2020 Schedule C. This is because your forgiveness amount is based on the 2019 or 2020 Schedule C. You can calculate your OCR by taking 8/52 or 24/52 (depending on your covered period length) of your net income reported on line 31 of your Schedule C.
How long must I maintain documents for PPP loan forgiveness?
All records relating to the borrower’s PPP loan must be kept for at least six years after the loan is either forgiven or paid off. That means holding onto any payroll reports, non-payroll cost receipts, and tax documents that you used to apply for forgiveness and apply for a PPP loan.
By submitting a forgiveness application, you are permitting the SBA to request any of these documents at any time during those six years.
When can I apply for PPP loan forgiveness?
Check out our list of PPP lenders taking forgiveness applications right now.
No need to rush! The SBA has not set a deadline to apply for forgiveness. You have 10 months after the end of your covered period before you are required to start paying back your loan with monthly payments.
Lenders have been reaching out in waves to PPP loan recipients. Keep your eyes peeled on your inbox and visit any PPP resources they have available for an update on when they will be ready to accept your forgiveness application.
When will I know how much of my loan is forgiven?
The lender has 60 days to review your forgiveness application—regardless of what form was used to apply. Your lender may decide to forgive all, some, or none of the PPP loan amount. From there, your application is sent to the SBA for a final review and confirmation of your forgiveness amount. The SBA has up to 90 days to evaluate your application and may contact you directly for additional information. Once this is done, your lender will let you know the final result of your application.
If your loan is partially forgiven—or not forgiven at all—interest will start accruing and payments must start being made 10 months after the end of your covered period.
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