The COVID-19 pandemic has hit American small businesses hard. In March, Congress created the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (CARES) to save jobs and support struggling businesses during the pandemic. Under the P3, small businesses could borrow up to $ 10 million from private lenders without collateral, personal collateral, or fees. These loans do not have to be repaid as they are used to cover the first 24 weeks (eight weeks for those who received their loans before June 5, 2020) of salary costs, rent, utilities and expenses. mortgage interest of the company. However, at least 60% of the amount remitted must be used for payroll.
The PPP took place from early April to early August. In total, more than $ 525 billion has been distributed to more than 5 million small businesses. One of the reasons PPP was so attractive to borrowers was the ability to turn those loans into grants. The program, however, has been criticized for problems with its deployment and the complicated loan cancellation process.
The Small Business Administration began processing loan forgiveness requests on October 2. By the end of September, lenders had submitted approximately 96,000 requests for remission to the SBA. These requests represent around 2% of all PPP loans.
Simplified loan waiver for small loans
After much speculation about legislation providing for automatic forgiveness of PPP loans for certain loans, the SBA recently acted alone to provide relief to some borrowers as an automatic forgiveness bill has yet to be introduced in Congress.
Recipients of PPP loans of $ 50,000 or less can request a forgiveness using a streamlined application released by the Treasury Department and SBA on October 8. A borrower who, along with its subsidiaries, has received loans totaling $ 2 million or more cannot use the new forgiveness application form.
The SBA says that of a total of 5.2 million PPP loans the agency approved, about 3.5 million were loans of $ 50,000 or less.
The new app streamlines the remittance process for PPP borrowers by removing complicated full-time equivalency (FTE) or pay cut calculations.
The new SBA loan forgiveness request (Form 3508S) requires fewer calculations and less documentation for eligible borrowers than the other two forms – SBA forms 3508 and 3508EZ. This is mainly due to the fact that companies that have borrowed $ 50,000 or less are exempt from the provisions of the CARES Act which impose a reduction penalty if the borrower has reduced the FTE employees or the salary or wages of the employees during the period. period covered.
Businesses that have borrowed $ 50,000 or less will still need to certify that:
- The funds were used for eligible expenses;
- Labor costs were at least 60% of the amount of the discount; and
- They respect the limits and limits of the owner-employee.
Borrowers must also provide documents justifying eligible salary and non-salary payments for the period covered, such as:
- Tax forms;
- Payment receipts, canceled checks or account statements documenting the amount of employer contributions to employee benefit plans;
- Copies of lender’s amortization schedules and canceled receipts or checks verifying eligible payments for the period covered;
- Commercial rents or lease payments and
- Business utility payments.
Supporting documents must be kept for six years after the date of cancellation or full repayment of the loan.
The PPP has undergone many changes since its inception. These may not be the latest changes to the program. Nonetheless, borrowers who qualify to use Form 3508S should consider initiating the loan cancellation process as soon as possible, as they are unlikely to see any further program changes. With the large volume of PPP loans outstanding, lenders and the SBA can be overwhelmed by an influx of forgiveness requests.