Coronavirus and Your Money

PPP Loan Forgiveness Applications are Now Easier

Small businesses that received PPP loans of $50,000 or less can now apply for forgiveness using a simplified application form.

The COVID-19 pandemic has hit U.S. small businesses very hard. In March, Congress created the Paycheck Protection Program as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act to save jobs and prop up struggling businesses during the pandemic. Under the PPP, small businesses could borrow up $10 million from private lenders without collateral, personal guarantees, or fees. These loans don't have to be repaid to the extent they're used to cover the first 24 weeks (eight weeks for those who received their loans before June 5, 2020) of the business's payroll costs, rent, utilities and mortgage interest. However, at least 60% of the forgiven amount must be used for payroll.

The PPP ran from early April through early August. In total, more than $525 billion has been distributed to more than 5 million small businesses. One reason the PPP was so attractive to borrowers was the potential to turn these loans into grants. The program, however, has been criticized for problems with its rollout and the complicated process of getting loans forgiven.

The Small Business Administration began processing loan forgiveness applications on October 2. As of late September, lenders have submitted about 96,000 forgiveness applications to the SBA. Those applications represent about 2% of all PPP loans.

Simplified Loan Forgiveness for Smaller Loans

After much speculation about legislation to provide automatic PPP loan forgiveness for certain loans, the SBA recently acted on its own to give some relief to some borrowers, since an automatic forgiveness bill has yet to move forward in Congress.

Recipients of PPP loans of $50,000 or less can apply for forgiveness using a simplified application that was released by the Treasury Department and the SBA on October 8. A borrower that, together with its affiliates, received loans totaling $2 million or greater may not use the new form to apply for forgiveness.

The SBA says that out of a total of 5.2 million PPP loans that the agency has approved, roughly 3.5 million were loans of $50,000 or less.

The new application streamlines the forgiveness process for PPP borrowers by doing away with complicated full-time equivalence (FTE) or salary reduction calculations.

The new SBA loan forgiveness application (Form 3508S) requires fewer calculations and less documentation for eligible borrowers than the two other forms – SBA Forms 3508 and 3508EZ. This is primarily because businesses that borrowed $50,000 or less are exempt from the CARES Act provisions that impose a reduction penalty if the borrower reduced FTE employees or the salary or wages of employees during the covered period.

Businesses that borrowed $50,000 or less will still have to certify that:

  • Funds were used for eligible expenses;
  • Payroll costs were at least 60% of the forgiveness amount; and
  • They meet the owner-employee's limitations and caps.

Borrowers also need to provide documentation that supports the eligible payroll and nonpayroll payments from the covered period, such as:

  • Tax forms;
  • Payment receipts, cancelled checks, or account statements documenting the amount of employer contributions to employee benefit plans;
  • Copies of lender amortization schedules and receipts or cancelled checks verifying eligible payments from the covered period;
  • Business rent or lease payments; and
  • Business utility payments.

The supporting documentation must be retained for six years after the date the loan is forgiven or repaid in full.

The PPP has undergone many changes since it was first created. These might not be the last changes to the program. Nevertheless, borrowers who are qualified to use Form 3508S should consider starting the process for loan forgiveness as soon as possible, as they're unlikely to see additional program changes. Given the large volume of outstanding PPP loans, both lenders and the SBA may become overwhelmed with an influx of forgiveness applications.

Most Popular

How to Use Your Estate Plan to Save on Taxes While You’re Still Alive!
estate planning

How to Use Your Estate Plan to Save on Taxes While You’re Still Alive!

Upstream basis planning is a trust strategy that can save wealthy people on their capital gains taxes and income taxes associated with highly apprecia…
July 3, 2022
Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
5 Ways to Prepare for a Recession

5 Ways to Prepare for a Recession

The signs seem to be pointing in one direction these days, so if you’re worried about being ready for a recession, consider taking these five measures…
June 28, 2022


Economic Pain at a Food Pantry
personal finance

Economic Pain at a Food Pantry

The manager of this Boston-area nonprofit has had to scramble to find affordable food.
June 28, 2022
Taxes on Unemployment Benefits: A State-by-State Guide
state tax

Taxes on Unemployment Benefits: A State-by-State Guide

Don't be surprised by an unexpected state tax bill on your unemployment benefits. Know where unemployment compensation is taxable and where it isn't.
June 23, 2022
Most-Overlooked Tax Deductions and Credits for the Self-Employed
Tax Breaks

Most-Overlooked Tax Deductions and Credits for the Self-Employed

If you've recently gone into business for yourself, don't miss these tax breaks for the self-employed.
June 11, 2022
The Golden Age of Cinema Endures
small business

The Golden Age of Cinema Endures

About as old as talkies, the Music Box Theater has had to find new ways to attract movie lovers.
June 2, 2022