SBA Simplifies PPP Loan Forgiveness for Small Borrowers

On October 8, the Small Business Administration and the Treasury Department introduced a simplified loan-forgiveness application (Form 3508S) for Paycheck Protection Program (PPP) loans of $50,000 or less. Detailed in a new interim final rule (IFR), the updated guidance is welcome news for many small businesses (and lenders) as it seeks to ease the burden for borrowers that are already struggling under the economic conditions brought on by the Covid-19 pandemic.

In all, the SBA approved approximately 5.2 million PPP loans worth $525 billion. Of these loans, about 3.57 million (worth $62 billion) fall in the range of $50,000 or less.

What Changed?

The new application form is just two pages (compared to eleven pages for larger borrowers) and greatly simplifies the forgiveness process for these smaller borrowers by not requiring complicated full-time-equivalent employee or salary reduction calculations (though borrowers will still need to make some certifications and provide payroll and nonpayroll documentation).

The SBA justified the simplified application process for businesses with loans of $50,000 or less because most of the loans in this range were made to businesses that are sole proprietors, independent contractors or businesses with just one employee (other than the owner). Owners likely wouldn’t furlough themselves, so even if a borrower furloughed or reduced the salary of their one employee, the overall impact on the SBA’s goal of keeping American workers on the payroll would be minimal compared to that of larger borrowers.

What’s Next?

The new guidance is welcome news for PPP borrowers that fall into the $50,000 or less loan category; however, larger borrowers will need to wait to see if the SBA or Congress enacts changes that could impact them. The documentation burden that currently exists in the loan forgiveness application process has resulted in lenders and industry trade groups pressuring Congress to simplify the process by providing automatic forgiveness for loans under a certain threshold (e.g., $150,000). While simplification of this process generally has bipartisan support, other aspects of any new potential relief package (such as details on a new round of stimulus checks and unemployment support) are proving more difficult, causing many to believe a new package won’t arrive until after the November election.

At CSH, we will continue to monitor new guidance impacting PPP loan recipients and communicate those updates regularly. In the meantime, shore up your paperwork so that you’re ready to apply when the time is right and don’t hesitate to reach out to us with questions.