Yesterday afternoon, the SBA released a revised forgiveness application, Form 3508 (Form 3508 Instructions), and a new “EZ” (EZ Form Instructions) application requiring less documentation. Both of these forms incorporate changes made by the recently enacted Paycheck Protection Flexibility Act (Click here for more information on the recent rule changes.). The new EZ application can be used by any borrower meeting any of the following criteria:
- Are self-employed and have no employees, OR
- Did not reduce salary or wages for any employee by more than 25%, and did not reduce the number or hours of their employees (except those employees who refused a written offer to return to work at the same rate and hours), OR
- Experienced reductions in business activity as a result of health directives related to COVID-19, and did not reduce the salaries or wages of their employees by more than 25 percent
A few immediate important observations on this release:
- For a sole proprietor, the “compensation” eligible for forgiveness is capped at $20,833. This in essence guarantees full forgiveness for these individuals that do not have employees.
- There are new provisions for self-employed individuals who have employees.
- As suspected, they did increase the salary limit from $15,385 to $46,154 per employee, which reflects the new 24-week period.
- Health insurance costs for S-corporation owners cannot be included when calculating payroll costs; however, retirement costs for S-corporation owners are eligible costs.
- Safe harbors for excluding salary and hourly wage reductions can be applied as of the date the loan forgiveness application. Therefore, borrowers do not have to wait to December 31 to apply for forgiveness
Perhaps most importantly, the application kept the FTE reduction quotient as being applied against total costs incurred over the 24 weeks vs. the forgivable costs based on the loan amount. Thus, with total costs over a 24-week period vs. an initial 10-week borrowing capacity, it seems to reason that most businesses should be able to afford a significant reduction in FTE count – even if they can’t meet the safe harbor at any point later this year.
All of this is good news and seems like most small business borrowers will have their entire loan forgiven. Of course, all the calculations have to be done, and reports generated, but we will have time. Banks will not be ready to take applications for a number of weeks yet, so there is no immediate rush to complete the applications.
As you would suspect, significant questions remain and significant guidance has yet to be released. We will provide additional information as it becomes available. In the meantime, if you have any questions, please don’t hesitate to contact us via email or phone at 215-723-4881.