Calling it EZ Doesn’t Make it Easy –SBA Updates the PPP Loan Forgiveness Application
On June 16, 2020, the Department of Treasury, in conjunction with the Small Business Administration, attempted to simplify the Paycheck Protection Program (“PPP”) Loan Forgiveness Application and to incorporate recent updates, amendments and clarifications to the PPP as set forth by the Paycheck Protection Program Flexibility Act (the “Flexibility Act”) by issuing a new application for certain borrowers called the PPP Loan Forgiveness Application Form 3508EZ (“Form EZ”) and revising the original loan forgiveness application (hereinafter called “Revised Forgiveness Application”).
PPP Loan Forgiveness Application Form 3508EZ
Form EZ is, as its name implies, a short and simple application. In order to use a Form EZ, at least one of the following statements must be true of the borrower:
(i) the borrower must be a self-employed individual, independent contractor, or sole proprietor who had no employees at the time of the PPP loan application and did not include any employee salaries in the computation of average monthly payroll in the Borrower Application Form;
(ii) during the covered period, the borrower did not reduce (X) its employee headcount, (Y) the average paid hours of its employees, or (Z) salaries/wages of its employees that make less than $100,000 per year by more than 25%; or
(iii) during the covered period, if the borrower did not reduce salaries/wages of its employees that make less than $100,000 per year by more than 25%, but it did reduce its employee headcount, but was unable to operate during the covered period at the same level of business activity as before February 15, 2020, due to compliance with requirements established or guidance issued between March 1, 2020, and December 31, 2020, by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to the maintenance of standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19.
All borrowers using the Form EZ will have to certify that at least one of the above statements is true so as to justify the use of the Form EZ.
Revisions based on the Flexibility Act
The Form EZ and the Revised Forgiveness Application incorporate the following amendments to the PPP promulgated by the Flexibility Act:
- Changes to the definition of “covered period”:
- The “covered period” is now defined as either (i) the 24-week (168-day) period beginning on the date PPP loan proceeds were disbursed, or (ii) if a borrower received its PPP loan before June 5, 2020, and it so elects, the 8-week (56-day) period beginning on the date PPP loan proceeds were disbursed. A borrower will fill in their “covered period” on the first page of their application.
- The maximum amount of cash compensation for any employee for the 24-week period is now capped at $46,154.
- For an owner-employee or self-employed individual, if a 24-week covered period applies, the loan forgiveness amount cannot exceed 2.5 months’ worth of 2019 compensation for any owner-employee or self-employed individual (capped at $20,833 per individual). For any applicable borrower, a certification will have to be made that this cap was not exceeded.
- Changes to the Loan Forgiveness Formula:
- Now not less than 60% of PPP loan proceeds (instead of 75%) must be used on eligible payroll costs to receive the maximum amount of forgiveness. Otherwise, the applicable borrower’s requested forgiveness amount will be proportionally reduced by the proportion by which the borrower failed to meet such percentage requirement. For example, if a borrower has a $100,000 PPP loan and uses 46% on non-payroll costs and 54% on payroll costs during the covered period, then the borrower’s forgiven amount will be reduced by ten percent (10%) to $90,000 (the percentage by which the borrower failed to meet the 60% use requirement – [6% / 60% = 10%]).
If you have any questions regarding PPP loan forgiveness or any of the applications, please give us a call.