SBA Releases Additional Interim Final Rule with Significant Changes to the PPP
October 9, 2020
On October 8, 2020, the U.S. Small Business Administration (SBA) released the Interim Final Rule on Additional Revisions to Loan Forgiveness and Loan Review Procedures Interim Final Rules (October 8 IFR) which significantly impacts the Paycheck Protection Program (PPP). The purpose of the October 8 IFR is to further simplify (i) the forgiveness and loan review processes for PPP loans of $50,000 or less, and (ii) for PPP loans of all sizes, lender responsibilities with respect to the review of borrower documentation.
Three key takeaways from the October 8 IFR are:
- The release of an alternative loan forgiveness application for PPP loans of $50,000 or less;
- Changes to loan forgiveness rules for PPP borrowers who use the alternative loan forgiveness application; and
- Changes to the loan review rules for PPP lenders.
The Alternative Loan Forgiveness Application (Form 3508S)
In connection with the October 8 IFR, the SBA issued an alternative Loan Forgiveness Application, SBA Form 3508S , for use by PPP borrowers applying for loan forgiveness on PPP loans with a total loan amount of $50,000 or less, except for those borrowers that together with their affiliates received loans totaling $2 million or greater. The SBA and Treasury have concluded that this form strikes an appropriate balance between the need to simplify the forgiveness process with the responsibility to protect the integrity of the program and safeguard taxpayer funds.
Changes to Loan Forgiveness Rules for Borrowers Using Form 3508S
A borrower of a PPP loan who qualifies and uses SBA Form 3508S (or lender’s equivalent form) to apply for loan forgiveness is exempt from any reductions in the borrower’s loan forgiveness amount based on reductions in full-time equivalent (FTE) employees or reductions in employee salary or wages that would otherwise apply.
Changes to Loan Review Rules
The release of Form 3508S necessitates changes to the lender review rules for borrowers using said form. When a borrower submits SBA Form 3508S, the lender shall (1) confirm receipt of the certifications and (2) confirm receipt of the required supporting payroll and non-payroll documentation.
Perhaps more impactful are the changes to the loan review rules for all PPP loans regardless of size or application form utilized by the borrower. In some cases, a borrower may submit to a lender documentation of eligible payroll and nonpayroll costs that exceed the amount of the borrower’s PPP loan. In these instances, a lender should confirm receipt of the documentation the borrower is required to submit to aid in verifying payroll and nonpayroll costs, and, if applicable (for SBA Form 3508, 3508EZ, or lender’s equivalent form), confirm the borrower’s calculations on the borrower’s loan forgiveness application, up to the amount required to reach the requested forgiveness amount.
What all of this means
There are approximately 3.57 million outstanding PPP loans of $50,000 or less, totaling approximately $62 billion of the $525 billion in PPP loans. The changes for effected borrowers resulting from the release of the October 8 IFR will save substantial amounts of administrative effort.
Lenders will need to modify their systems and/or loan forgiveness processes to accommodate the receipt of Form 3508S. This could result in delays in accepting loan forgiveness applications for certain borrowers.
Let Aprio Help
Aprio has established a dedicated PPP loan forgiveness team that is continuously monitoring new guidance from the SBA, as well as the Treasury, Congress and the IRS, to ensure we have the latest information when advising our clients.
If you would like to discuss how to accurately complete your forgiveness application to maximize PPP loan forgiveness, contact Aprio’s dedicated PPP loan forgiveness team for a consultation.
Disclaimer for services provided relative to SBA programs and the CARES Act
Aprio’s goal is to provide the most up to date information, along with our insights and current understanding of these programs and regulations to help you navigate your business response to COVID-19.
The rules regarding SBA programs are constantly being refined and clarified by the SBA and other agencies In certain instances, the guidance being provided by the agencies and/or the financial institutions is in direct conflict with other competing guidance, regulations and/or existing laws.
Due to the evolving nature of the situation and the lack of final published rules, Aprio cannot guarantee that additional changes or updates won’t be needed or forthcoming and the original advice given by Aprio may be affected by the evolving nature of the situation.
You need to evaluate and draw your own conclusions and determine your Company’s best approach relative to participation within these programs based on your Company’s specific circumstances, cash flow forecast and business strategy.
In situations where resources are provided by third parties, those services should be covered under a separate agreement directly with that service provider. Aprio is not responsible for the actions of any other third party.
Aprio encourages you to contact your legal counsel to address the legal implications of the impact of the CARES Act and specifically your participation in any of the SBA programs.
About the Author
Justin Elanjian, CPA, is the Partner-in-Charge of Aprio’s Paycheck Protection Program (PPP) & Employee Retention Credit (ERC) Services. As a national PPP expert, prominent speaker and strategic business advisor, Justin helps both lenders and borrowers navigate the complexities of the PPP. He also helps his clients realize benefits from other stimulus package programs, such as the ERC, and is committed to strengthening his clients’ balance sheets and helping them achieve what’s next. Justin also leads a team of more than 50 professionals who share his passion for helping businesses maximize the federal COVID relief programs.