SBA Simplifies Forgiveness Application For Paycheck Protection Program Borrowers (And Their Lenders) For Loans Of $ 50,000 Or Less | Hodgson Russ LLP
In recent months, lenders, business groups, borrowers and some lawmakers have pushed for a more streamlined forgiveness process for Paycheck Protection Program (P3) loans up to $ 150,000, although that a consensus was not reached in Congress. On October 8, 2020, the SBA and the Treasury took a small step towards simplification. The new SBA 3508S form and related Interim Final Rule (IFR) for borrowers with PPP loans of $ 50,000 or less, except those who, along with their affiliates, have received $ 2 million or more in loans PPP, will simplify the delivery process. The new procedure covers some 3.57 million PPP loans of $ 50,000 or less, representing about $ 62 billion.
The IFR published by the SBA takes up the form and modifies the rules previously issued. Now, a borrower who requests a remission using Form 3508S “is exempt from any reduction in the borrower’s loan forgiveness amount based on full-time equivalent employee (FTE) reductions (Section 1106 (d)) (2) of the CARES Act) or reductions in salary or wages of employees (Article 1106 (d) (3) of the CARES Act) which would otherwise apply. The SBA justified this position by noting that about 1.71 million of the 3.57 million PPP loans under $ 50,000 went to companies with zero or one employee who would not be affected by these anyway. exemptions. This brings the estimated impact of the streamlined forgiveness process to $ 49 billion in PPP loans. With respect to the latter, the SBA “estimates” that most of these borrowers would not be affected by the reduction requirements because these borrowers likely did not reduce FTE employees or wages or salaries, or the borrower would have. entitled to one of the existing exemptions from the loan forgiveness reductions. The SBA therefore concluded that when all of these borrowers are excluded, the impact of the change on aggregate PPP funds would be de minimis.
The new, simplified two-page form 3508S still requires the borrower to submit documents to their lender verifying salary costs, proving the existence of obligations and non-salary services prior to February 15, 2020, and payment of salary expenses and non-salary discounted during the period covered. In addition, the form is mainly based on the borrower’s certifications attesting that the information is accurate, has been verified and meets the following criteria:
- The dollar amount for which the discount is requested does not exceed the principal amount of the PPP loan and:
- was used to pay for costs eligible for the rebate (salary costs to retain employees; commercial mortgage interest payments; rent or lease payments; or commercial utility payments);
- includes salary costs equal to at least 60% of the amount of the discount;
- if a 24-week covered period applies, not exceed 2.5 months of compensation in 2019 for any owner-employee or self-employed / general partner, capped at $ 20,833 per person; and
- if the borrower has chosen a covered period of 8 weeks, does not exceed 8 weeks of compensation in 2019 for any owner-employee or self-employed / general partner, capped at $ 15,385 per person.
The IFR emphasizes that providing correct calculations remains the responsibility of the borrower, who must certify that they have accurately calculated and verified the eligible costs and the discount amounts indicated in the request. The borrower should also ensure that the information on their rebate request matches the information submitted or to be submitted to the IRS. Lenders can rely on the borrower’s statements without independently verifying them as long as the lender confirms receipt of the borrower’s certifications and documentation of the borrower’s salary and non-salary costs in accordance with the instructions and form. rebate request. The IFR also explains that if a borrower submits documents on eligible salary or non-salary costs that exceed the PPP loan amount, the remission amount cannot exceed the loan amount. Thus, the lender may need to confirm the borrower’s calculations up to the amount eligible for the rebate.
The new IFR and the simplified form are expected to ease the burden on lenders, borrowers and the SBA regarding a large volume of small PPP loans. Notwithstanding the simplification of the process for the PPP loan category under $ 50,000, the SBA can still review or audit any loan for borrower eligibility and forgiveness amounts. The borrower also remains subject to civil and / or criminal liability for fraud, unauthorized use of PPP funds and knowingly making false statements in a pardon application. Therefore, all borrowers should still carefully prepare their applications, take note of the content and importance of the required certifications, and ensure that they have properly documented the appropriate use of PPP loan funds for reimbursable expenses during the course. of the covered period concerned. And according to the instructions on the form, borrowers must also keep all records and documents supporting the application and demonstrating compliance for six years after cancellation or repayment of the loan.
While the SBA Administrative Amendment offers welcome relief for smaller PPP loans, borrowers with PPP loans between $ 50,001 and $ 150,000 should stay tuned for possible additional relief. Some industry groups, legislators and lenders are still asking for simplification up to the $ 150,000 threshold. Congress could continue to assess proposed legislation in the weeks or months to come that could replace or expand the SBA’s new IFR and facilitate the forgiveness process on larger loans, but perhaps with guarantees and collateral. additional protections against fraud or potential abuse.