Knowledge and Insights

On October 8, 2020, the Small Business Administration (SBA) released a streamlined two-page application (i.e., Form 3508S) focused specifically on small Paycheck Protection Program (PPP) borrowers who borrowed less than $50,000.  Although eligible loans account for only 9% of overall PPP loan dollars, they amount to approximately two-thirds of all PPP loans funded.

The instructions to the form explain that forgiveness is still not automatic for this class of borrowers.  However, a few of the more complex and time-consuming tasks have now been removed from the standard forgiveness application for these small borrowers.  Most notably, a PPP borrower with a loan of less than $50,000 is no longer required to reduce the amount eligible for forgiveness if the borrower reduced:

1. The salary or hourly wage of an employee (who earned less than $100,000 in 2019) during the “covered period” following the borrowing in relation to the first quarter of 2020, or
2. Full-time equivalent employees (FTEs) during the covered period relative to a base period.

Although this apparent change seems contrary to the initial intent of the PPP, it’s likely to be a big relief to small borrowers applying for forgiveness.

Aside from the above changes, the forgiveness application process remains largely the same.  Small borrowers must still compute the amount eligible for forgiveness but are no longer required to show their math.  However, it’s important to note that the SBA may request support for the borrower’s computation at any time.  Moreover, applicants must submit documentation verifying forgivable payroll and non-payroll expenses.

These trade-offs for brevity did, however, result in an increase in the number of representations required by small borrowers, including:

Borrowers are required to retain the documentation supporting their certifications for six years, but do not need to submit all such supporting documents with their forgiveness application.

Interestingly, on the standard Form 3508, the instructions provide that the final forgiveness amount is to be reduced by any Economic Injury Disaster Loan advance received by the taxpayer – up to $10,000. The instructions to Form 3508S contain no such requirement.

According to an interim final rule set forth by the SBA, providing an accurate calculation of the loan forgiveness amount is the responsibility of the borrower.  The interim final rule reiterates previous guidance that lenders may rely on borrower representations and do not need to independently verify the borrower’s reported information so long as the borrower submits documentation supporting its request for loan forgiveness and attests that it accurately verified the payments for eligible costs.  Once the forgiveness application is received, the lender must confirm that it received the borrower’s certifications and documentation.

Your Mercadien advisor can help you prepare the required loan forgiveness calculations, compile the necessary documentation, complete and submit the application and answer other questions about the PPP. Mercadien is also available to assist you in evaluating your budget and cash flow needs, working as an advisor and sounding board to help you manage your way through the upcoming months.  Complete the COVID-19 Assistance Request form on our website or contact Frank Pina, CPA at [email protected] or 609-689-2319 to get started.

DISCLAIMER: This advisory resource is for general information purposes only. It does not constitute business or tax advice, and may not be used and relied upon as a substitute for business or tax advice regarding a specific issue or problem. Advice should be obtained from a qualified accountant, tax practitioner or attorney licensed to practice in the jurisdiction where that advice is sought.