The Small Business Administration (SBA) released a revised, borrower-friendly PPP loan forgiveness application. The revised application implements the changes found in the PPP Flexibility Act of 2020. For more information about these changes, please see our blog post on the PPP Flexibility Act.
In addition to the revised, full forgiveness application, the SBA also released a new EZ version of the forgiveness application. Borrowers may use the EZ application if they:
- Are self-employed and have no employees,
- Did not reduce the salaries and wages of their employees by more than 25% and did not reduce the number or hours of their employees, or
- Experienced reductions in business activity as a result of health directives related to COVID-19 and did not reduce the salaries and wages of their employees by more than 25%.
If a borrower does not meet any of these requirements, it must use the revised, full application.
Both applications simplify the process of applying for PPP loan forgiveness, which will make it easier for nonprofit organizations to realize full forgiveness of their PPP loans.
PPP Loan Forgiveness
The PPP, or Paycheck Protection Program, provides direct incentives to small businesses, including nonprofits, to keep their workers on payroll. Congress provided that, if a nonprofit organization uses its PPP loan funds to keep its employees on its payroll, the SBA will forgive all or part of the loan.
To be eligible to receive full forgiveness of the loan, a borrower must maintain its payroll during its covered period and use the funds only for payroll costs, rent, mortgage interest, and utilities. The covered period may be either the 8 or 24 weeks following receipt of the PPP funds. Additionally, a borrower must use at least 60% of the funds for payroll costs. Borrowers can calculate their amount of forgiveness by completing either the EZ or revised PPP loan forgiveness application.
The EZ PPP Loan Forgiveness Application (Form 3508EZ)
The EZ application is a simple, 2-page application. If a borrower did not reduce the salaries and wages of its employees by more than 25% and it either did not reduce the number or hours of its employees or it experienced reductions in business activity as a result of health directives related to COVID-19, it will qualify to use the EZ application.
What is a reduction in business activity as a result of health directives related to COVID-19?
Specifically, the EZ application states that the reduction in business activity must be “due to compliance with requirements established or guidance issued between March 1, 2020 and December 31, 2020, by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to the maintenance of standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19.”
The EZ application doesn’t say that a reduction in business activity due to compliance with state regulations or guidance will qualify the borrower to use an EZ application. Thus, unless the SBA provides additional guidance, the reduction must be due to guidance issued by the listed agencies.
What is needed to complete the EZ application?
To complete the EZ application, a borrower must calculate its eligible payroll and nonpayroll costs for its covered period. Nonpayroll costs include mortgage interest payments, rent, and utilities. Remember that the covered period may now be either 8 weeks or 24 weeks, according to the PPP Flexibility Act.
Additionally, the borrower must calculate its potential forgiveness amount. To do so, it must add together its eligible payroll and nonpayroll costs, provide its PPP loan amount, and divide its eligible payroll costs by 0.60. The smallest of these three numbers will be the borrower’s forgiveness amount. That is all the EZ application requires, along with the certifications that the borrower qualifies to use the EZ application.
The Revised Full Forgiveness PPP Loan Forgiveness Application
The revised PPP Loan Forgiveness Application is now only 4 pages long (down from the original 11 pages). Among the 4 pages is a schedule A, where borrowers calculate their adjustments to forgiveness for salary and wage reductions and full-time equivalency (FTE) reduction quotients. For a more detailed description of these reductions, please see our blog post on the original PPP loan forgiveness application.
The schedule A reductions are applied to the borrower’s eligible payroll and nonpayroll costs to get the reduced eligible costs. The reduced eligible costs are then compared to the borrower’s PPP loan amount and 60% of its eligible payroll costs. The smallest of these three numbers will be the borrower’s forgiveness amount.
The full-forgiveness application is more complicated than the EZ application because borrowers must calculate adjustments using the schedule A. However, once the borrowers completes those calculations, the application is fairly simple. Borrowers can find more information regarding how to fill out the application on the SBA website. Additionally, feel free to contact The Law Firm For Nonprofits for assistance with PPP loan forgiveness applications.