On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act authorized $349 billion in forgivable federal loans (“PPP loans”) to small employers to provide incentive to keep employees with an additional $310 billion of funding on April 24, 2020. Most lenders are now accepting PPP loan forgiveness applications, and L&B is ready to provide assistance to your organization during the process.
PPP loans are structured similarly to most interest-bearing loans, but are forgivable either in full or in part if spent during a covered period on certain eligible costs. Covered periods can either be 8 or 24 weeks in length beginning at the loan disbursement date, and forgiveness applications must be completed within 10 months after the last day of the covered period. The unforgiven portion of the loan bears interest at a rate of 1% per annum over 2 years (if the loan was received before June 5, 2020) or 5 years (if the loan was received after June 5, 2020).
There are three types of PPP loan forgiveness applications: Form 3508S, Form 3508EZ, and Form 3805. Form 3508S is for borrowers with PPP loans equal to or less than $50,000. Form 3508EZ is for self-employed individuals, or organizations in which employee levels, salary, wages, or hours were not reduced during the covered period compared to employee levels, salary, wages, or hours of a comparison period elected by the borrower. The comparison periods are January 1, 2020 through February 29, 2020 or February 15, 2019 through June 20, 2019. Form 3805 is for all other borrowers.
To qualify for forgiveness, PPP loan proceeds must be used on certain payroll costs, rent, business mortgage interest, and utilities during the specified covered period. Non-payroll costs may not exceed 40% of total eligible PPP loan forgiveness. Additionally, to qualify for full forgiveness, organizations must have retained 100% of full-time equivalent employees over the course of the covered period and have not reduced the total wages or salary for any employees by more than 25% of their wages or salary compared to the first quarter of 2020. There are several safe harbors and exemptions available in the event a borrower had to reduce their employee levels, salary, wages, or hours.
The Small Business Administration has made public a list of appropriate documentation recommended to support the aforementioned items on the application, however, it is important to note that additional information may be requested from your organization’s lender. Sufficient recordkeeping is critical.
L&B is available to help prepare or review your PPP loan forgiveness application as well as to answer any general questions. For assistance related to the PPP loan forgiveness application, please contact your L&B professional at (858) 558-9200.