SBA Releases New Loan Forgiveness Application

On June 3, 2020, the President signed into law the Payroll Protection Program Flexibility Act (the “Flexibility Act”). You can read more about the Flexibility Act here. Earlier this week, the Small Business Administration (“SBA”) published a new Loan Forgiveness Application to implement the changes imposed by the Flexibility Act.

The instructions to the Application acknowledge the option to use either an 8-week covered period or 24-week covered period. Likewise, the Application revises the formulas to reflect the new requirement that only 60% of the loan proceeds must be used for “payroll costs,” down from 75%. Finally, the Application extends the Reduction Safe Harbor (i.e., those Borrowers that reduced their workforce between February 15 and April 26) deadline to December 31, 2020. There are various other small changes to the Application that reflect other revisions made by the Flexibility Act.

Along with the release of the new Application, the SBA published a new Form 3508EZ (the “EZ Application”), which purports to be a simplified version of the Loan Forgiveness Application. The instructions to the EZ Application provide a qualification checklist for using the short form, requiring the user satisfy one of the following three qualifications:

• The Borrower is self-employed, an independent contractor, or a sole proprietor and did not have any employees or employee compensation at the time it submitted its Borrower Application Form.
• The Borrower did not reduce any employee’s salary or wages by more than 25% (sometimes referred to as the Wage Reduction Rule) and did not reduce the number of employees or average paid hours of employees (sometimes referred to as the FTE Rule or Headcount Rule).
• The Borrower did not reduce any employee’s salary or wages by more than 25% (sometimes referred to as the Wage Reduction Rule) and was unable to operate at the same level of business activity due to the regulations passed related to maintenance of standards of sanitation, social distancing, or other work or customer safety requirement related to COVID-19.

When analyzing eligibility, compliance, or other issues related to the PPP loans, both lenders and borrowers should ensure they have consulted the proper sources. If you have any questions regarding the SBA PPP loans, or other aspects of the CARES Act, please contact a Baird Holm LLP attorney.