Changes to the SBA Forgiveness Process for PPP Loans Above $150,000

Find out everything you need to know to get your loan forgiven.

Do you have an outstanding Paycheck Protection Program (PPP) loan of more than $150,000?

Changes were made to the PPP loan forgiveness process early in 2021. (This follows similar adjustments made by the PPP Flexibility Act in mid-2020.) One of the more recent changes made it much easier for people who have loans of under $150,000 to apply for forgiveness, using the new Small Business Administration (SBA) Form 3508S.

In addition to this, the Small Business Administration and Treasury Department continued — and better defined — the original forgiveness process for loans valued at greater than $150,000 that do not meet all PPP forgiveness requirements. Borrowers in this situation use SBA Form 5308 to apply for forgiveness. It allows them to calculate and apply for a reduced forgiveness amount. The SBA and Treasury Department also provided a simplified option for those with loans of greater than $150,000 that are applying for complete forgiveness. They can now use SBA Form 5308EZ.

The changes are causing confusion for many small business owners, especially those who have already applied for forgiveness for earlier PPP loans. Here’s what you need to know to get your loan forgiven so you won’t have to pay it back.

PPP program loan forgiveness

If all or part of a loan is forgiven, it means that all or a portion of it does not have to be paid back. It’s one of the features of PPP loans that made them so appealing to small business owners. Forgiven loans can be thought of as government grants to small businesses.

PPP borrowers are allowed to apply for loan forgiveness if they meet one of these three requirements:

• They were self-employed (an owner-employee), an independent contractor, or a sole proprietor with no employees at the time of the PPP loan application.
• They have not reduced the salary of any full-time employee (FTE) who did not have an annualized salary of more than $100,000 during any single pay period in 2019 by more than 25 percent. In addition to this, they did not reduce the number of workers (headcount) or the average number of paid hours of employees during the loan period. The only exceptions to this are a reduction in the number of employees, paid hours, or related payroll expenses that happened because the business was unable to find (or rehire) qualified people to fill open positions or workers refused to have their number of hours restored to their original, higher number after a reduction.
• They have not reduced the salary of any full-time employee who did not have an annualized salary of more than $100,000 during any single pay period in 2019 by more than 25 percent. In addition to this, the business must be able to show it was unable to operate or was operating with a lower level of business activity while the loan was in effect because it was complying with sanitation, social distancing, or any other safety requirements or guidance. The requirements or guidance could have been issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention (CDC), or the Occupational Safety and Health Administration (OSHA) and they must be related to the coronavirus pandemic.

If a borrower’s loan does not meet these requirements, it does not qualify for forgiveness. At a certain point, depending on when the loan was taken out, the business will have to start a repayment program including interest payments of one percent over a two or five-year period. In most cases, there is a ten-month loan repayment deferral period.

Note: Economic Injury Disaster Loans (EIDL advances) that were repaid through a subsequent PPP loan are not impacted by PPP loan forgiveness.

PPP loan forgiveness application forms and application process

If your PPP loan amount is greater than $150,000, you are able to apply for partial forgiveness using Small Business Administration (SBA) Form 3508 or complete forgiveness with SBA Form 3508EZ. Eligible borrowers who have outstanding loans under that amount can use the newer, updated SBA Form 3508S. This applies to both first and second draw loans. The new form is a much simpler, easier-to-complete version that requires no documentation to be submitted with it.

Did you know: Approximately 15 percent of PPP loans are for amounts greater than $150,000?

The one-page Form 3508S application only asks for:

• Number of employees when the loan was applied for and at the time the forgiveness application is submitted.
• Amount of the loan amount spent on payroll costs
• How much loan forgiveness is requested.

The simplified form also makes the person completing it attest:

• All the information in the application is true and a good faith attempt was made to ensure the information in it is correct in all material ways.
• Loan fund use complies with all requirements under sections 7(a)(36) and 7(a)(37) and 7A of the Small Business Act, Paycheck Protection Program interim final rules, along with all guidance issued by the Small Business Administration up until the date of the forgiveness application including:

• Eligible use of PPP loan proceeds
• The amount of PPP loan funds that are required to be used for payroll costs
• The calculation and documentation of any business revenue reduction (if applicable)
• The calculation of the requested loan forgiveness amount.

Form 3508S does not require applicants to show the calculations they used to figure out their loan forgiveness amount. No additional documents need to be submitted with it. Providing demographic information is optional. However, your lender may ask for supporting information to be included when you submit your Form 3508S. (Your lender will be able to provide you with information about their documentation requirements.) Also, be aware that the SBA may ask for information and documentation to review your calculations as part of the organization’s loan review or audit processes.

Interesting fact: Small business owners who took out PPP loans of under $150,000 and have already applied for forgiveness using Form 3508 can submit a Form 3508S application to their lender at any time until the SBA notifies the lender of a final loan review decision or provides the lender with a final PPP loan forgiveness payment.

By contrast, Form 3508 is five pages long and includes the following sections:

• Calculation form
• Signature and authorization form
• Schedule A
• Schedule A worksheet
• Demographic information form (which is optional).

Form 3508 is longer and more complex because it requires significantly more calculations than Form 3508S. Many of these calculations are related to how the loan money was spent, reductions in the number of employees or worker hours and to reduce loan forgiveness amounts if the funds were used for things not allowed by the Paycheck Protection Program. Borrowers who complete this form must attest to the same things as those who use Form 3508S.

Like Form 3508, Form 3508EZ makes borrowers calculate payroll and nonpayroll costs. But because of the eligibility requirements to use the form, adjustments for full-time employees and salary reductions are not necessary.

Form 3508EZ is three pages long and includes:

• Calculation form
• Signature and authorization form
• Demographic information form (which is optional).

Uses must attest to the same things as those who complete the other applications.

Important note: The covered period for your PPP loan must be either eight or 24 weeks after your loan fund disbursement date, whether you use the 3508, 3508EZ, or 3508S PPP loan forgiveness application. You are allowed to spend your loan funds in less than eight or 24 weeks. If you do, you will only need to provide documents for the time you used the PPP funds. No matter, you must select eight or 24 weeks as your covered period on your PPP loan forgiveness application.

No matter which forms you use, if the loan forgiveness application is being submitted for a second draw PPP loan, the applicant must:

• submit (or have already submitted) the necessary revenue reduction documentation
• have used all first draw PPP loan funds on allowable expenses before the second draw PPP loan funds were disbursed.

Important information: Borrowers who received a loan of more than $50,000 or who received loans of $50,000 or less but taken together with their affiliates received a total of $2 million or more of PPP loan funds may be required to adjust the requested loan forgiveness amount for reductions in full-time equivalent employee calculations and salary or wage reductions that exceed 25 percent. These reductions could be waived through a safe harbor. If this applies to you, a loan expert can review your options with you.

Once you complete your application, submit it, along with any required supporting documentation, to your original loan provider, not the Small Business Administration or other government agency. Make sure you do this through a secure server system so your identity or personal financial information isn’t compromised.

Your loan provider has 60 days to work with you to make changes to your application, approve it and submit it to the SBA. Once that happens, the SBA has 90 more days to make a decision about your forgiveness application.

Borrowers are required to keep all employment records and payroll documentation related to their PPP loan for four years and all other documentation for three years after the date the loan forgiveness application is submitted to the lender. In addition to this, the borrower must allow authorized SBA representatives to get access to the files as requested.

Be aware: The Small Business Administration may ask for additional information so they can better evaluate a borrower’s eligibility for PPP loan forgiveness. If the borrower does not supply any of the information requested by the SBA, the SBA could decide that the business owner was not eligible for the PPP loan in the first place or reject the loan forgiveness application.

Whether a loan is forgiven will be decided based on PPP rules. The SBA may require that a lending organization reject a loan forgiveness application if it decides that the business was not eligible for the PPP loan in the first place.

Tip: If you have questions about your PPP loan or forgiveness application, contact your representative at Biz2Credit or the provider you worked with. If you want to check on the tax or financial implications a PPP loan could have on your business finances or IRS tax situation, consult with your financial advisor, CPA, bank representative, or tax expert.

Want to learn more about SBA loan forgiveness? Check out the frequently asked questions (FAQs) section of the organization’s website.

About the Paycheck Protection Program

The Paycheck Protection Program (PPP) was a small business loan initiative. It was part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) which was passed into law by Congress in 2020, near the beginning of the coronavirus pandemic. The PPP was originally a $350 billion economic stimulus program that supplied eight weeks of cash assistance to small business owners in the United States.

The money was distributed through 100 percent federally guaranteed loans that can be forgiven if the funds from them are spent on eligible expenses like rent, mortgage interest, utility payments, covered supplier costs, worker protection expenditures, eligible payroll costs, and other covered operations expenditures. The loans were backed and administered by the Small Business Administration. The purpose of the PPP loan program was to prevent small businesses from closing down and to keep the people who work for them employed. Additional funding for the initial phase of the PPP was approved at a later date because the loans were so popular with business owners and proved to be an effective employee retention program.

In late 2020, a new PPP bill was passed and signed into law that extended the program. The purpose of the extended economic aid act was to help small businesses make it through the most devastating part of the coronavirus pandemic during the winter of 2021. The last day of second-round funding was in May 2021, except for some microloan programs targeted to select minority groups. Funding for the second round was $285 billion.

In total, almost $800 billion, representing 12 million loans, has been distributed to small businesses across the United States through the Paycheck Protection Program.