PPP Forgiveness for Loans Under $50,000
If you received a PPP loan of $50,000 or less, the Small Business Administration and the Treasury have unveiled a new way to apply for Paycheck Protection Program loan forgiveness.
Using a new form, SBA Form 3508S, business owners can apply for forgiveness for their loan with simpler paperwork and with new guidelines.
Crucially, the SBA is no longer requiring that businesses with a PPP loan of $50,000 or less maintain their pre-pandemic employee headcount or salaries/wages in order to receive full forgiveness, if they use this form.
Let’s review SBA Form 3508S and see how it differs from other PPP forgiveness applications.
What Is SBA Form 3508S?
One of the main tenets of PPP was that business owners needed to maintain the same number of employees, at similar salaries/wages, that they had before February 15, 2020.
Once the time came to apply for PPP loan forgiveness, businesses used either SBA Form 3508 or SBA Form 3508EZ. They could access the forms directly from the SBA, or through their PPP lender.
But if you have no employees, this headcount and salary rule doesn’t really apply to you. You just use the loan toward salary replacement/owner compensation (putting 100% of the loan toward “payroll”) and move on. According to the SBA, about half of the 3.6 million businesses with outstanding PPP loans of $50,000 or less are sole proprietors or self-employed workers with no employees.
Hence, SBA Form 3508S—a new, slightly streamlined PPP forgiveness application form for businesses that took out PPP loans of $50,000 or less. Even if you do have employees, if your loan amount is under this cap, this form is for you.
Now, businesses with smaller PPP loans can use an even simpler form than the “EZ,” which still required you to certify that you had not reduced headcount or wages. (The “EZ” form is “Easy.” The “S” form is “Simple.” Makes sense, right?)
How to Fill Out SBA Form 3508S
Filling out SBA Form 3508S is quite simple compared to even the “EZ” form, and especially the regular SBA 3508.
The first section of the form asks for basic identifying information about your business—name, address, contact information, EIN or SSN, etc.
It also asks for PPP loan information such as your PPP loan number, loan amount, and disbursement date. You’ll also fill in the number of employees you had at the time of applying for the PPP loan, and the number of you have at the time of applying for forgiveness:
Remember: Even if you did reduce headcount during the time you had the loan, you can still receive full forgiveness if you use this form or your lender’s equivalent form, (as long as your loan is for $50,000 or less). The SBA clarified this point in their “Interim Final Rules”:
A borrower that uses SBA Form 3508S (or lender’s equivalent form) is exempt from any reductions in the borrower’s loan forgiveness amount based on reductions in full-time equivalent (FTE) employees (section 1106(d)(2) of the CARES Act) or reductions in employee salary or wages (section 1106(d)(3) of the CARES Act) that would otherwise apply. As such, Part III.5 of the First Loan Forgiveness Rule, as revised by Revisions to Loan Forgiveness and Loan Review Procedures Interim Final Rules, does not apply to borrowers of loans of $50,000 or less that use SBA Form 3508S (or lender’s equivalent form) to apply for loan forgiveness.
Fill out this section completely and accurately, and refer to PPP loan documentation you received from your lender for information such as the Lender PPP Loan Number.
Part two of the form requires you to initial seven separate statements and certifications:
By agreeing to these statements, you essentially certify that you used your PPP loan for authorized purposes only, aren’t asking for more in forgiveness than you did in your loan, will supply all required documentation to back up your claims, and acknowledge that the government can follow up with you for more information if necessary.
You then will print and sign your name and date the application.
What Else Do You Need to Submit?
SBA Form 3508S is not an “automatic loan forgiveness” form.
To receive forgiveness, you still need to provide your lender with proof that you used your PPP loan on authorized costs only—namely, payroll, rent, mortgage interest, and utilities. You have to spend at least 60% of your loan on payroll, and the other 40% or less on the other three categories.
For payroll costs, you’ll need to submit payroll documentation, such as reports from your payroll provider, showing you spent PPP funds on salary, wages, health insurance, state and local taxes and retirement benefits.
Self-employed workers, you can use your 2019 Schedule C to demonstrate your previous salary and use your PPP loan as 2020 salary replacement. The exact amount you can use as salary replacement differs depending on whether you are using an eight-week covered period (compensation is capped at $15,385) or a 24-week covered period ($20,833).
If you have used any of your PPP loan on rent, utilities, or mortgage interest payments (for a maximum of 40% of your loan), you’ll need to show proof of those costs in order to get them forgiven. This can include business rent or lease payments, payments of interest on business mortgage obligations, and payments for services such as electricity, gas, water, transportation, telephone, or internet access.
Proof of these payments could be a copy of your current lease agreement and receipts or cancelled checks verifying eligible payments during your covered period; copies of invoices or account statements verifying your payment; copy of a lender amortization schedule or lender account statements.
You will submit all of the above documentation to your lender along with your completed SBA Form 3508S in order to apply for forgiveness. For further clarification on how to fill out each step, you can review the SBA’s official instructions for SBA 3508S.
The Bottom Line
There’s no doubt about it: If you took out a PPP loan for $50,000 or less, this new SBA form makes it easier to apply for forgiveness. The application is shorter than even the “EZ” form that came before it, requires fewer calculations, and excludes you from having to have maintained FTE employees or salaries/wages. So if it’s time for you to apply for forgiveness, this form is helpful.
That being said, this form still requires time and diligence to fill out, and you’ll still need to be careful to provide all required documentation along with it. Review the form carefully, speak to your accountant if you have one, and/or get in touch with your lender for further guidance.