Late in the evening on January 19, the U.S. Small Business Administration (SBA) posted the simplified Paycheck Protection Program (PPP) loan forgiveness form that was mandated by the 2021 Consolidated Appropriations Act (CAA). The form was released as a revision to the existing Form 3508S and is titled “PPP Loan Forgiveness Application Form 3508S Revised January 19, 2021.”
Highlights of Revised Form
Form 3508S has been modified to be used with both first and second draw PPP loans. As required by the CAA, only two dollar amounts are requested: the amount of the loan spent on payroll costs and the requested loan forgiveness amount. The amount entered as spent on payroll costs has taken on some additional significance due to the ability to claim Employee Retention Credits (ERC) in addition to the PPP. It’s important to note, however, that a borrower can’t use the same payroll costs for the ERC that was included and used on the PPP forgiveness application. See this BKD Thoughtware® article and related flowchart for more information on the ERC.
The use of Form 3508S doesn’t grant automatic forgiveness of the full PPP loan. For loans in excess of $50,000, the full-time equivalent (FTE) reduction rules and the salary and hourly wage reduction provisions that can reduce the loan forgiveness amount are still applicable. These provisions aren’t applicable to loans of $50,000 or less. While a borrower with a loan in excess of $50,000 is required to make the FTE reduction and the salary and hourly wage reduction calculations, no documentation is required to be submitted with the Form 3508S in connection with those calculations. However, documentation relating to employment and payroll is required to be maintained by the borrower for four years from the forgiveness application submission date and three years for all other documentation.
The SBA also released a new Form 3508D, Borrower’s Disclosure of Certain Controlling Interests, which is required to be filed if a “covered individual” has a direct or indirect controlling interest (defined as owning, controlling, or holding 20 percent or more, by vote or value, of the outstanding amount of any class of equity interest) in the borrower at the time of the PPP loan application. “Covered individual” refers to the president or vice president of the U.S., head of an executive department (as defined in 5 USC Section 101), members of Congress, or a spouse of any of the foregoing. The form isn’t required to be filed if no controlling interest is held by a covered individual.
In spite of its simplicity, it’s important to remember the SBA reserves the right to disapprove an application for forgiveness even if it’s filed on the revised Form 3508S. A statement to that effect is included as the last sentence prior to the borrower’s signature. Lastly, each lender will have its own process for submission of the form. We recommend that you check with your lender for specific filing guidance.
With the PPP fully reopened, now is the time to review your situation and work with your advisor to review opportunities for a new PPP loan and/or begin the forgiveness application process (including analysis of the interaction with the ERC).