Are you eligible to use the new forgiveness application?
Last week the Small Business Administration (SBA) issued an updated Paycheck Protection Program (PPP) Loan Forgiveness Application (Form 3508), as well as a brand-new Form 3508EZ for certain PPP borrowers to use to apply for forgiveness. Both forms were updated to reflect the changes brought by the PPP Flexibility Act passed in early June.
The following summary offers clarification from our review of the updated Forgiveness Application and new EZ Application, with additional CWA insight.
Application Changes Resulting from the PPP Flexibility Act
- Selecting a Covered Period: The borrower will select either the 8-week or 24-week covered period option at the time of application.
- Owner Compensation: The limit for owner compensation increased from $15,385 to $20,833 if a 24-week covered period is selected.
- Non-Owner Highly Compensated Employees: The limit for non-owner highly compensated employees is $100,000/52 x 24 weeks or $46,154 if a 24-week covered period applies.
CWA Insight: For most CWA clients the extension from 8 to 24 weeks will allow most loan proceeds to be used on payroll alone and obtain maximum forgiveness. This should simplify the documentation needed for forgiveness to just payroll reports.
The increase in owner compensation will have the most significant impact on CWA clients in a shell corporation as this will allow them to utilize more proceeds. Most CWA clients in a shell corporation received a PPP loan of $25,000 – $32,000. With the increased benefit of $20,833 for owner compensation and with the 24-week time frame allowing $10,000 – $11,000 in spouse payroll, most PPP funds should now fully be used on qualified expenses. Additionally, the shell corporation can still utilize the utilities and interest if applicable and needed to achieve full loan forgiveness.
Are You Eligible to Use the EZ PPP Loan Forgiveness Application?
The new EZ Application provides a much simpler application process for forgiveness, requiring fewer calculations and less documentation. This will apply to borrowers that:
- Are self-employed and have no employees; or
- Did not reduce the salaries or wages of their employees by more than 25% during the covered period compared to 1/1/2020-3/31/2020 and did not reduce the number of hours of their employees between 1/1/2020 and the end of the covered period; or
- Experienced reductions in business activity as a result of health directives related to COVID-19 and did not reduce the salaries or wages of their employees by more than 25% during the covered period compared to 1/1/2020-3/31/2020.
CWA Insight: The language contained in the EZ application related to qualification to use this form is extremely confusing. We expect the SBA to clarify this at some point, but for CWA practices that received their loan close to their reopening date, are ramping back up to full capacity, and have staff back at prior levels, they could qualify for this shortened application.
As always, the subject of forgivable PPP loans is still evolving. The good news is the two applications will make the loan forgiveness process easier for business owners. We expect more guidance to come and will continue to provide updates as new information becomes available.