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Borrowers of Paycheck Protection Program (PPP) loans have begun working through their forgiveness applications and are learning that the process is quite complex. While applying for forgiveness is different for each borrower, here are five issues that have surfaced as common concerns and that may affect the amount of forgiveness you receive:
1. Different inputs can equal different outputs.
Application instructions include a variety of options, including several eligible costs, different reference periods, several safe harbor options, and different methods of calculations. Your amount of forgiveness will vary depending on the options you use.
2. Coordination with the EIDL advance.
If you received an Economic Injury Disaster Loan (EIDL) Emergency Advance or Emergency Grant (EIDLG), your PPP loan forgiveness will be reduced by the amount of your advance or grant. You must include the advance or grant amount as well as the EIDL application number on your PPP loan forgiveness application.
3. Eligible payroll costs.
Payroll costs eligible for forgiveness include employer contributions for employee health insurance.
4. Ratio of forgivable payroll and non-payroll costs.
The Paycheck Protection Program Flexibility Act of 2020 (PPPFA), passed by Congress on June 5, provides that no more than 40 percent of forgiveness can be attributed to non-payroll costs. You are required to certify this on the S application and show it as a calculation on line 10 of the Standard application or line 7 of the EZ application.
5. Ensure your data is easy to understand by the lender and the SBA.
Business owners understand their businesses better than anyone else. Even payroll reports can have quirks or customizations that they, their managers and employees find it easy to understand but that might not be clear to those reviewing your reports for loan forgiveness.
Contact your HBK advisor with your PPP loan forgiveness application questions or concerns.
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Borrowers, together with their affiliates, who have loans over $2 million may be required to provide additional information to support the certifications made on their Paycheck Protection Program (PPP) loan application via two new SBA questionnaires.
When applying for the PPP loan, borrowers certified that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” The certification drew attention in May when some borrowers were alleged to have taken loans without it being “necessary,” and some large companies returned borrowed funds. The SBA also released an FAQ indicating that “to further ensure PPP loans are limited to eligible borrowers in need, the SBA has decided, in consultation with the Department of the Treasury, that it will review all loans over $2 million, in addition to other loans as appropriate.” While subsequent guidance indicated the SBA could review the borrower’s eligibility, including for this certification, no guidance has been provided to indicate how the SBA would evaluate how borrowers determined they had the need required to make this certification.
Now, SBA Form 3509 and SBA Form 3510 have begun circulating (although they have not been released directly by the SBA or Treasury). Instructions on the forms indicate that borrowers and their affiliates (per SBA affiliation rules) that received loans over $2 million would be required to complete and submit both forms, which address the borrowers’ business activities and liquidity. Accordingly, lenders would request the forms from borrowers, and borrowers would be required to complete them within 10 days of lenders’ requests.
These forms, or questionnaires, have not been confirmed as official by the SBA or Department of the Treasury, and no corresponding guidance has been issued. However, borrowers with loans greater than $2 million should review the forms with the understanding that they are likely to be used by the SBA to confirm eligibility. Borrowers concerned about their eligibility should contact their legal counsel.
If you have questions about your PPP loan, forgiveness, or the Loan Necessity questionnaires, please contact your HBK Advisor.
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On October 8, 2020, the Small Business Administration (SBA), in conjunction with the Treasury Department, released a new application designed to simplify the Paycheck Protection Program (PPP) loan forgiveness process for some small borrowers.
SBA Form 3508S is intended for borrowers who received PPP loans of up to $50,000. However, if those borrowers and their affiliates received loans totaling at least $2 million, they are not eligible to use Form 3508S.
Form 3508S simplifies the forgiveness process by eliminating the FTE and wage/salary reduction calculations. In an Interim Final Rule also released on October 8, the SBA and Treasury explained that these exemptions are allowable as de minimis exceptions to the CARES Act. Specifically, the SBA believes that most borrowers in this dollar range would not be affected by these reductions because they did not have FTE or wage/salary reductions or they would otherwise qualify for the safe harbor options.
Borrowers who do not fall into the under-$50,000 range should continue to use Form 3508 or Form 3508EZ applications. They should also stay alert to possible changes to forgiveness requirements through future legislation.
To obtain the SBA copy of the simplified application, instructions and related Interim Final Rule, visit:
For questions about PPP loan forgiveness or for support in completing the application documents, please contact your HBK Advisor.
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According to a July 6 announcement, the Federal Reserve Board’s Main Street Lending Program (MSLP) is now fully operational. Lenders are accepting applications and the Federal Reserve is prepared to participate in eligible loans, the agency said.
The program is designed to help small and medium-sized business relieve the financial strain caused by the COVID-19 crisis. Loans can range in size from $250,000 to $300 million. The loans are not grants and will not be forgiven.
Interested parties can review the program, eligibility, term sheets for each facility (new, priority, or expanded), and frequently asked questions via the following links:
Prospective borrowers can also contact a lender participating in the program for additional details. Not all lenders are participating.
If you have questions about the MSLP or other COVID-19 relief options, please contact your HBK Advisor.
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