Relief for Small Borrowers — SBA Issues PPP Forgiveness Rule for Borrowers of $50,000 or Less

The Small Business Administration (SBA) and the U.S. Department of the Treasury recently issued an Interim Final Rule (IFR) and a new loan forgiveness application, SBA Form 3508S, for Paycheck Protection Program (PPP) borrowers with loans of $50,000 or less.

This IFR exempts borrowers with loans of $50,000 or less from any reductions in their loan forgiveness amount based on reductions in Full Time Equivalent (FTE) employees or reductions in employee salary or wages that would otherwise apply, allowing them to have their entire loan amount forgiven despite workforce or wage reductions. The IFR also loosens lender review requirements for loan forgiveness applications of any loan size.

There had been conversations about relaxed forgiveness rules for loans of $150,000 or less but it looks like the SBA and Treasury agreed on $50,000 or less. 

Background

The Coronavirus Aid, Relief & Economic Security (CARES) Act added the PPP loan program to the SBA’s Section 7(a) Loan Program to assist small businesses adversely impacted by the COVID-19 pandemic. The PPP loans are 100 percent guaranteed and forgivable up to the full principal amount of qualifying loans. Legislation subsequent to the CARES Act provided additional funding and modifications to the program.

Loan Forgiveness and Review Changes

The SBA and the Department of the Treasury have issued a series of rules implementing the PPP, including regulations and guidance on loan forgiveness provisions and loan review procedures. The latest IFR simplifies the forgiveness and loan review processes for PPP loans of $50,000 or less. It also removes lender responsibilities for PPP loans of all sizes to review borrower documentation of eligible costs for forgiveness in excess of a borrower’s requested forgiveness amount.

Related to the revisions, the SBA also released an alternative loan forgiveness application, SBA Form 3508S, for use by PPP borrowers applying for loan forgiveness on PPP loans of $50,000 or less. Borrowers that together with their affiliates received loans totaling $2 million or greater are not eligible to use this form.

Loan forgiveness rules: The IFR exempts borrowers of loans of $50,000 or less that use SBA Form 3508S (or lender’s equivalent form) to apply for loan forgiveness from any reductions in the borrower’s loan forgiveness amount based on reductions in full-time equivalent (FTE) employees or reductions in employee salary or wages. The exemption applies to the rule under Part III.5 of the First Loan Forgiveness Rule (85 FR 33004).

Loan review rules: The IFR revised the loan review rules to incorporate the new SBA Form 3508S and update lender responsibilities in reviewing this new application. The IFR also addressed the situation when borrowers submit documentation of eligible payroll and nonpayroll costs that exceed the amount of the borrower’s PPP loan. The SBA added text to Part III.2 of the First Loan Review Rule (85 FR 33010), stating that:

The amount of loan forgiveness that a borrower may receive cannot exceed the principal amount of the PPP loan. Whether a borrower submits SBA Form 3508, 3508EZ, 3508S, or lender’s equivalent form, a lender should confirm receipt of the documentation the borrower is required to submit to aid in verifying payroll and nonpayroll costs, and, if applicable (for SBA Form 3508, 3508EZ, or lender’s equivalent form), confirm the borrower’s calculations on the borrower’s Loan Forgiveness Application, up to the amount required to reach the requested Forgiveness Amount.

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