On Friday, May 15, the SBA released Form 3508, the Loan Forgiveness Application for the Paycheck Protection Program (PPP) loans. Recipients of PPP loans will complete the application and submit to the lender from whom they received their PPP loan.
The application consists of a three-part calculation to determine the amount eligible for forgiveness. First, the application asks for the payroll and qualifying non-payroll costs that the business has spent over the eight-week period since it received its PPP funds (more on the updated definition of these costs later).
The second step is a reduction in the forgiveness amount if you have reduced pay for an individual employee greater than 25 percent of their first quarter 2020 pay or if you have not brought back the same number of full-time equivalent employees (more on that definition later). The full-time equivalent employee (FTE) rule requires a small business to reduce its forgiveness request if it does not bring back the same number of employees that it had pre-pandemic. The application does provide for a waiver of this reduction if the business failed to bring back its same employee count during its eight-week period but later brought back the same number of employees by June 30, 2020.
Step three is the 75 percent payroll cost test, which states that the forgiveness request must be comprised of at least 75 percent payroll costs. The other 25 percent can only be rent, mortgage interest debt, and utilities. If the forgiveness request in step three exceeds 75 percent, then you will instead take the amount of your payroll costs and will divide that by .75, and this will give you your total forgiveness amount.
A couple of clarifications were found in the application instructions. First, lease payments were clarified to include rent or lease payments for real or personal property in force by February 15, 2020. Second, utility expenses were defined as “…electricity, gas, water, transportation, telephone or internet access, for which service began before February 15, 2020.”
Additionally, the application gives flexibility to businesses with bi-weekly payroll. These businesses can elect an Alternative Payroll Covered Period to begin on the first day of the first pay period after their PPP loan disbursement date. This allows the businesses to have a full eight-week period of payroll.
As further guidance on the PPP Loan Forgiveness Application is received, we will continue to keep you updated.
A copy of the Loan Forgiveness Application can be accessed here.