Lender Impact of Simplified Forgiveness Application for PPP Loans of $50,000 or Less

On October 8, 2020, the Small Business Administration (SBA) announced a simplified Paycheck Protection Program (PPP) forgiveness application process for loans of $50,000 or less. The release includes the Interim Final Rule, Form 3508S—a new forgiveness application—and borrower instructions. PPP loans for $50,000 or less are eligible for the simplified forgiveness application subject to additional affiliate rules.

In a statistic from the final interim rule, the SBA estimated there are approximately 3.6 million outstanding PPP loans of $50,000 or less, totaling approximately $62 billion of the $525 billion disbursed under the PPP program. While this represents about 12% of the funds disbursed, it covers about two-thirds of the program’s total loans.

For qualifying borrowers with loans of $50,000 or less, the Interim Final Rule exempts the borrowers from applying the following reductions in forgiveness amounts:

  • Reductions of full-time equivalent employees
  • Reductions in employee salary or wages

Below, learn how the Interim Final Rule impacts lenders. This is an evolution of the guidance previously evaluated in our article SBA Clarifies PPP Responsibilities for Lenders.

Form 3508S

To facilitate the new rules, the SBA released a new Forgiveness Application Form for loans of $50,000 or less—Form 3508S. Eligible borrowers can use this form or the Lender’s equivalent to apply for loan forgiveness.

The form is streamlined and requires the borrower to input the forgiveness amount and certify qualifying expenses during the appropriate periods.

Unlike Forms 3508 and 3508EZ, Form 3508S doesn’t include any computations when determining the forgiveness amount.

Effect on Lenders

Eligible borrowers need to double check that they’re using the correct forgiveness form. Depending on plans for the forgiveness process—such as a custom borrower portal with lender equivalent forms—online forms and document collection solutions may need to be updated.

Updates to the Lender Review Process

The Interim Final Rule updates the requirements of the lender review process for Form 3508S, or lender equivalent, indicating the lender shall:

  • Confirm receipt of borrower certifications contained in the SBA Form 3508S or lender’s equivalent form
  • Confirm receipt of documentation the borrower must submit to aid in verifying payroll and nonpayroll costs as specified in SBA Form 3508S instructions or lender’s equivalent form

Providing an accurate calculation for the forgiveness amount remains the responsibility of the borrower, even though the calculation is no longer on the forgiveness form.

Effect on Lenders

The full-time equivalent and employee salary or wage tests are no longer applicable, which reduces the complexity of the forgiveness calculation. It also reduces the corresponding data needed for that component of the calculation.

However, it doesn’t reduce the lender’s responsibility for obtaining appropriate documentation to support the forgiveness.

Previous responsibilities haven’t changed with the Interim Final Rule. Lenders will still be required to obtain support for qualifying expenses used in determining forgiveness.

Form 3508S instructions include detailed listings of appropriate documentation.

The documentation for payroll includes:

  • Bank account statements or third-party payroll service provider reports
  • Tax forms such as federal payroll reporting forms like Form 941 or state-wage and unemployment reporting
  • Payment receipts, canceled checks, or account statements to support employer contributions to health insurance and retirement plans

The documentation for nonpayroll includes:

  • Amortization schedules and payment support for mortgage interest payments
  • Lease agreements and payment support for rent or lease payments
  • Payment support or account statements for utility payments

The lender review process for these documents should be the same for loans $50,000 or less as it is for all PPP loans.

Costs in Excess of Loan Amount

The Interim Final Rule also provides new guidance regarding the forgiveness process for all PPP loans. The guidance covers the scenario where the borrower submits documentation of eligible costs that exceed the PPP loan amount.

The amount of loan forgiveness can’t exceed the principal amount of the PPP loan, but borrowers may submit documentation for expenses above this amount. The lender should confirm the following:

  • Receipt of the documentation of qualifying expenses
  • Borrower’s calculations up to the forgiveness amount

Lender Considerations

If the borrower’s supporting documentation for payroll covers the entire forgiveness amount, then the lender should review the calculation and the documentation up to the forgiveness amount. The lender may not need to review other supporting documentation. However, the lender is still required to confirm receipt of all documentation provided by the borrower.

We’re Here to Help

For more details about the PPP program, please contact your Moss Adams professional. Additionally, if you’d like assistance with PPP forgiveness for your institution, explore our PPP loan forgiveness platform.

Note on COVID-19

During this unparalleled time, we’re closely monitoring the COVID-19 situation as it evolves so we can provide up-to-date guidance and support to help you combat uncertainty. For regulatory updates, strategies to help cope with subsequent risk, and possible steps to bolster your workforce and organization, please see the following resources: