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Small PPP Loan Borrowers, Lenders Get Simpler Options

The SBA issued new guidelines last night that make two changes to the loan forgiveness process. The first change is a new simplified form for a business with PPP loans no greater than $50,000. The second change is that banks who receive applications showing more expenses eligible for forgiveness than the loan amount only need to verify documentation up to the amount of the loan.

New SBA Form 3508S

The SBA issued new form 3508S for small borrowers to use to apply for loan forgiveness. The advantage to the borrower is that using this form automatically excludes the borrower from the rules on reduced FTEs and reduced wages. This exclusion does not apply if a borrower is eligible to use the new form but uses one of the other forms instead. Even though most borrowers eligible to use the form already fell under one of the other exceptions to those rules, using the new form simplifies the process because it eliminates the review of those exceptions.

Borrowers are eligible to use the new form if their PPP loan was no greater than $50,000 and all the PPP loans of the borrower and any affiliates was less than $2 million.

The use of the new form should not have a significant effect on the time required to complete the loan forgiveness application. Assembling the documentation of the costs for the loan forgiveness and organizing it in an easily reviewable format is by far the most time-consuming part of completing the application. The new form does not change those documentation requirements.

The new form is only one page long with an additional optional one page of borrower demographic information. In addition, most of the one page is comprised of representations of the borrower that the application is proper. There are only two items on the form that aren’t available directly from the prior loan applications and documents: the amount of loan forgiveness and the number of employees at the time the application is filed. The number of employees in the request does not affect the amount of loan forgiven.

Although the new form does not ask for the breakdown of costs by category, borrowers should still provide this information on a schedule that summarizes the eligible costs for the bank to use in reviewing the application. The banks will have a large number of these applications to review. Making the review process as simple as possible should speed the process of getting your loan forgiven.

Banks’ Review of Forgiveness Documentation

The SBA issued changes to the loan review rules. In most cases, the borrower will have eligible costs of more than the loan forgiveness amount. Under the SBA changed rules, the lender only needs to review documentation for amounts up to the forgiveness on the loan.

Although these rules are written for the lenders, they can impact how the borrowers assemble their loan forgiveness application package. To speed the process for bank approval, borrowers should assemble their package with an eye toward simplifying the bank review. Simplifying the bank review should reduce both the time required for approval and the number of questions about the application that must be answered.

For example, if the borrower’s applicable period included one entire calendar quarter plus a portion of another quarter, the payroll for that one quarter might be enough to support the entire loan forgiveness amount. If so, the borrower can prepare the summary of the information in a way that shows the total payroll costs eligible for forgiveness by quarter. If the borrower then reconciles these quarterly payroll costs to the totals on the quarterly 941 forms, the bank can limit its detail review to the payroll costs for that one quarter. If the borrower gives simple documentation of the reconciliation to the 941 form, the bank should be able to approve the forgiveness by only reviewing that reconciliation.

Another example is that the documentation of non-payroll costs will often be less complex than the payroll documentation. If a borrower is using rent expense to support the loan forgiveness, the documentation consists of a copy of the lease agreement and the cancelled checks for the loan payments (or the borrower can provide check copies and the bank statements showing the checks clearing the bank). Since rent is only paid monthly, this documentation is much less voluminous that the documentation for numerous payroll runs for each employee. If the borrower provides easy to follow documentation of these non-payroll costs, it can substantially reduce the amount of detail review the lender needs to perform on the payroll.

Conclusion

The SBA continues to change the rules for the PPP loan program. With the big impact of the PPP program on small businesses, it is important to keep up to date on these changes.

Please contact us at WhippleWood CPAs if you have further questions about the impact of this guidance on the loan forgiveness process. Contact Steve Barkmeier or Mitch Clark.