New Paycheck Protection Program (PPP) Forgiveness Rules for $50,000 and Under from the SBA

The Paycheck Protection Program (PPP) first began accepting loan applications from small business owners affected by the Coronavirus pandemic and economic downturn. These loans are 100% forgivable if certain requirements are met, including bank and SBA approval.

Unfortunately, borrowers have been confused by information regarding forgiveness and the SBA has stepped up to help simplify the process. On October 12, 2020, the SBA released a new PPP forgiveness form 3508S for PPP loans under $50,000 along with new, easier to apply instructions.

Access the new PPP forgiveness application

5 PPP Forgiveness Takeaways

Here are key facts about the PPP forgiveness process and how it impacts business owners owing less than $50,000.

Most businesses haven’t applied

When the federal government extended the covered period from 8 weeks to 24 weeks, many business owners waited for guidance on next-steps. Additionally, forgiveness applications are processed through the bank that funded the PPP loan and many have not yet started to accept loan forgiveness applications.

No calculations required

The new application form for PPP loans under $50,000 only requires borrowers to confirm the PPP-loan proceeds were used for eligible costs, and to provide supporting documentation showing expense payments. Small business owners should keep PPP loan forgiveness records for at least six years.

Documentation simplification

Only bank statements or cancelled checks are required to show payments from the business to the employee (including the business owner) to document the qualifying payments. Quarterly tax form 941 documenting paid payroll isn’t required. If an EIDL Advance was funded, it must be subtracted on the forgiveness request from the amount that would be eligible. For more information about EIDL and PPP use, visit the SmartBiz Small Business Blog: EIDL Loan Guide 2020.

Who is not eligible to use the simplified application for forgiveness?

Review these restrictions on the new forgiveness application:

  • Small businesses that reduced their full-time employee headcount from pre-pandemic levels or have reduced pay rates more than 25 percent. In these instances, PPP borrowers need to use the standard PPP loan-forgiveness application, and qualifying payroll costs need to be reduced based on pay rate decreases or full-time employee headcount reductions.
  • Small businesses that can’t use the new simplified application solely because their loan amount was greater than $50,000 should use the SBA’s PPP EZ Application.
  • Small businesses that obtained a PPP loan more than $50,000 but less than $150,000*

*There is pending legislation regarding these borrowers, that if approved by Congress and the President, would provide a similar one-page PPP forgiveness request for PPP loans under $150,000.

Processing timeline for forgiveness applications

A small business must submit its PPP loan forgiveness application to the bank or lender who funded their PPP loan. The bank has 60 days to make a decision. If approved by the bank, the loan is then submitted by the bank to the SBA. The SBA then has 90 days to review and approve the application and will send payment to the bank paying off the small businesses PPP loan.

The SmartBiz® Small Business Blog and other related communications from SmartBiz Loans® are intended to provide general information on relevant topics for managing small businesses. Be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed. Please consult legal and financial professionals, and the applicable SBA rules, for further information.