After the passage of the Paycheck Protection Program Flexibility Act (“Flexibility Act”), the Small Business Administration (“SBA”) released PPP loan forgiveness applications and amended its guidance regarding the PPP.

Forgiveness Guidance

As outlined in our previous blog, found HERE, the initial rules were amended to change forgiveness periods from eight (8) weeks to twenty-four (24) weeks. If you received your PPP loan before June 5, you may elect to utilize the 24-week covered period OR the 8-week covered period. Notably, if you received your loan after June 5, you must utilize the 24-week covered period.

What is the impact of using the 8-week period? If the borrower elects the 8-week covered period, the cap on compensation is the same as in the original forgiveness application. As a refresher, under this application, employees’ compensation cap is $15,385. However, if the employee is self-employed, the compensation cap is the lesser of either 1) eight (8) weeks’ worth of 2019 compensation, or 2) $15,385.

What is the impact of using the 24-week period? If the borrower elects, or must use, the 24-week covered period, the employees’ cap on compensation is $46,154. This number equals the prorated amount of $100,000 for 24 weeks. However, if the employee is self-employed, the compensation cap is the lesser of either 1) 2.5 months’ worth of the employee’s 2019 compensation, or 2) $20,833.

New and Revised Forgiveness Applications

 The SBA has released a new, more streamlined forgiveness application called the Form 3508EZ Application (“EZ Form”). Further, the SBA has made borrower-friendly revisions to the standard Form 3508 Application (“Standard Form”).

New EZ Form

The EZ Form instructions can be found HERE, and lays out that the borrower may use this EZ Form, rather than the Standard Form, if the borrower falls under one of the three below categories:

1. The borrower is self-employed, an independent contractor, or sole proprietor who did not include any employee salaries to calculate an average monthly payroll in the borrower’s loan application and did not have any employees at the time the borrower filled out the loan application; OR

2. The borrower did not reduce the annual salary or hourly wage of any employee by more than twenty-five (25) percent during the covered period compared to the period between January 1, 2020 and March 31, 2020. Notably, this does not include employees that make more than $100,000 a year;

AND the borrower did not reduce the number of employees or the average paid hours of employees between January 1, 2020 and the end of the covered period; OR

3. The borrower did not reduce the annual salary or hourly wage of any employee by more than twenty-five (25) percent during the covered period compared to the period between January 1, 2020 and March 31, 2020. Notably, this does not include employees that make more than $100,000 a year;

AND the borrower was unable to operate during the covered period at the same level of business activity as before February 15, 2020, due to compliance with requirements established or guidance issued between March 1, 2020, and December 21, 2020, by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to the maintenance of standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19.

As in the Standard Form, the EZ Form requires you to list amounts paid for payroll costs, mortgage interest, rent, and utilities. Also as with the Standard Form, borrowers must provide documentation of the eligible costs and documentation that the listed mortgage, rent, and utilities were all in effect on February 15, 2020. Further, when borrowers submit paid health costs, they may not include the company paid health costs of the owners. However, paid retirement costs do count for the owners, but are limited to 2.5 months of the 2019 annual level. These items were not specifically addressed in the previous forgiveness form. 

Revised Standard Form

If a borrower does not qualify to use the EZ form by way of any of the above three options, the borrower must use the Standard Form to apply for forgiveness. Unlike the EZ Form, the Standard Form accounts for adjustments for Full-Time Equivalency (“FTE”) and salary and/or hourly wage reductions. This means that forgiveness reductions are applied in any of the following three scenarios:

1. If the borrower has not reduced the number of employees or the average paid hours of employees between January 1, 2020, and the end of the covered period;

2. If the borrower was unable to operate between February 15, 2020, and the end of the covered period at the same level of business activity as before February 15, 2020, due to compliance with requirements established or guidance issued between March 1, 2020, and December 31, 2020, by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19.

3. If the borrower restored any reductions in FTE prior to December 31, 2020.

As always, the guidance regarding the PPP and Covid-19 related resources is ever-evolving. Follow our Coronavirus alerts for updates on changes to laws and applicable guidance HERE, or contact us today to discuss your options HERE.

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This Blog was written by Hunter Business Law Attorney Stephanie Boussias.

DISCLAIMER: This blog is for educational purposes only and does not offer nor substitute legal advice. Additionally, this blog does not establish an attorney-client relationship and is not for advertising or solicitation purposes. Any of the content contained herein shall not be used to make any decision without first consulting an attorney. The hiring of an attorney is an important decision not to be based on advertisements or blogs. Hunter Business Law expressly disclaims any and all liability in regard to any actions, or lack thereof, based on any contents of this blog.