If you received a Paycheck Protection Program loan for less than $50,000, your forgiveness process just got easier. On October 8, the Small Business Administration (SBA) released PPP Loan Forgiveness Application Form 3508S which requires fewer calculations and less documentation for borrowers.
Here’s what PPP borrowers need to know about this new, simplified forgiveness application.
What is Form 3508S?
The new Form 3508S is the simplest forgiveness application form yet making the COVID relief you need easier.
Both Form 3508 and Form 3508EZ required calculations to show the forgiveness amount you’ve requested. Alternatively Form 3508S simply asks you to provide the forgiveness amount you’ve requested and certify the conditions via initials and signatures.
Additionally, if you are using Form 3508S, your loan amount will not be reduced due to a reduction in headcount (FTE) or salaries or wages.
Your application will still be reviewed with 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 $50,000, you can use the simplified 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
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What documents will I need to provide?
When you’re ready to apply for forgiveness, here are the documents you will have to provide:
- 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
- State quarterly business and individual employee wage reporting and unemployment insurance tax filings
- Payment receipts, cancelled checks, or bank account statements showing employer contributions to group employee benefits plans
- 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.
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 Schedule C (or a drafted Schedule C for January to February 2020 reviewed or prepared by a CPA if you started your business after June 2019). Your forgiveness amount will be based on the 2019 Schedule C or drafted January to February 2020 Schedule C provided. You can calculate this number by taking 8/52 or 24/52 (depending on your covered period) of the net income reported on line 31 of the Schedule C.
If you received an EIDL, you will have to provide the EIDL advance amount (if received) and the EIDL application number. Your forgiveness amount will be reduced by the EIDL advance amount.
Documents that borrowers must maintain (but not submit)
In addition to submitting the above documents, all records relating to the borrower’s PPP loan must be kept for at least 6 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 in those 6 years.
When can I apply for PPP loan forgiveness?
If your lender isn’t accepting forgiveness applications right now, don’t worry. While the SBA has not set a deadline to apply for forgiveness, you have 10 months after the end of your covered period before you’ll be required to start making 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 application.
While the form states it expires November 30, 2020, the SBA has clarified that the date will be extended and the same forms with a new expiration date will be posted.
When will I know how much of my loan is forgiven?
The lender has 60 days to review a forgiveness application—regardless of what form was used to apply. You may be forgiven for 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 will have to start being made 10 months after the end of your covered period.