Updates on PPP Loan Forgiveness
This blog was authored by my colleague, Brittany Stern, Financial Institutions Manager.
Congress passed the Consolidated Appropriations Act (the Bill) in December 2020, which opened the doors for the SBA to release additional guidance related to processing the forgiveness of PPP loans. While PPP loans have provided much needed aid to the small businesses in this country, keeping up with the continuous changes in guidance has been a full-time business in itself. Below we will summarize some of the updates made in January 2021:
Updates for All Loans (regardless of size)
Additional Expenses – The Bill allows PPP loans to be used for additional expenses, including operations expenditures, property damage costs, supplier costs and worker protection expenditures. Forms 3508 and 3508EZ have been updated to reflect lines for these additional costs.
Covered Period – Previously, borrowers were required to select from a full 8- or 24-week covered period. The Bill updates this to allow borrowers to select a covered period anywhere from 8 to 24 weeks.
Hold Harmless – The Bill states that a lender who “acts in good faith relating to loan origination or forgiveness” will be held harmless on all PPP loans, which include both first and second draws.
Tax Implications – The Bill clarified the tax implications of PPP lending – stating “no deduction shall be denied, no tax attribute shall be reduced and on basis increase shall be denied, by reason of the exclusion from gross income provided.” This essentially states that the receipt of a PPP loan has no taxable implications, and nothing should be added or omitted from the tax return related to PPP Loans.
Updates for Loans $150,000 or less
On January 19, 2021, the SBA released the updated Form 3508S, which can now be used for all PPP Loans $150,000 or less. We suspect this is the closest borrowers will come to the unicorn that is automatic forgiveness. The main provisions of this updated 3508S are as follows:
- Borrowers will be required to include their NAICS Code – in our experience, many borrowers have struggled to identify this code, and will lenders want to verify this?
- Covered Period is included – In the previous 3508S, the Borrowers were not required to complete a covered period but in the updated form this is required. Remember, the covered period can be any time frame (days or weeks) between 8 weeks and 24 weeks. We have seen many borrowers struggle to determine the covered period, including the covered period not starting on the date of disbursement as required by the SBA.
- Amount of Loan Spent on Payroll Costs – We interpret this to be similar to Line 1 of the 3508 or 3508EZ, which we have found many borrowers struggle completing and ensuring this line directly matches the payroll support (for the chosen covered period).
- As a reminder, the requested loan forgiveness amount cannot exceed the PPP Loan amount.
In addition to the updated form, the SBA updated the Interim Final Rule on the same date to note the following:
- When submitting a Form 3508S for first draw loans, an eligible borrower at the time of their forgiveness application will not be required to show the calculations used to determine the loan forgiveness amount. However, the SBA reserves the right to request the information and documents to review those calculations should the loan be chosen for review or audit by the SBA.
- This differs from submission for forgiveness for a second draw loan using a 3508S, which the additional documentation will be required at the time of submission.
- From a lender review perspective, since the borrower is not required to submit support for the calculations, the Lender’s review process will be limited to reviewing the one-page signed form provided.
- On January 15, 2021, the SBA released a Procedural Notice related to resubmissions using the 3508S, lender responsibilities and offset of remittances to lenders. This notice allows borrowers to resubmit loan forgiveness applications using the simplified form 3508S at any time until the SBA notifies the lender of a final SBA loan review decision or remits to the lender the PPP loan payment.
How Can We Help?
CLA can help you with the details of PPP loan forgiveness process and questions. We stand ready to discuss the advantages of using our portal to assist you and your borrowers in applying for PPP loans and the related forgiveness. Join our webinar on Friday January 29, 2021 for a deeper dive into PPP originations and the new forgiveness forms. Watch for further articles and webinars on relevant and timely topics.
Susan is a CPA with more than 20 years of combined experience in public accounting and the financial institution industry, including experience with Fortune 500 financial services companies. Susan serves as the managing principal of CLA’s financial services group. Her responsibilities include providing engagement oversight in the areas of assurance and internal audit. In addition, Susan provides board advisory and management consulting services in the areas of strategic planning and mergers and acquisitions. Susan has been involved in multiple mergers and acquisitions of sizes ranging from $150 million to $500 billion with engagement at all stages of the process.
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