The New Simplified Loan Forgiveness Application for PPP Loans of $50,000 or Less

To simplify the loan forgiveness process, the SBA and the Treasury rolled out a new application that will make it a little less confusing for small businesses who took out loans of $50,000 or less.

During the beginning of October, the US Small Business Administration (SBA) and the Treasury Department announced simplified forgiveness of Paycheck Protection Program (PPP) application for $50,000 or fewer loans.

The PPP was a new emergency Small Business Administration (SBA) loan program included as part of the $2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES Act), signed into law at the end of March.

The loan program was to provide relief to struggling businesses affected by novel coronavirus because of the economic downturn caused by the pandemic.

Many small businesses have been confused by the constantly changing rules for obtaining the loans and getting the loans forgiven.

The program stopped accepting applications on Aug. 8, and the current phase now is getting the loans forgiven by the SBA.

To simplify the loan forgiveness process, the SBA and the Treasury rolled out a new application that will make it a little less confusing for small businesses who took out loans of $50,000 or less.

According to the new interim final rule (IFR), which guides the PPP loan forgiveness, 3.57 million out of the 5.2 million PPP loans approved by the SBA were for $50,000 or less. Nearly 1.71 million PPP loans of $50,000 or less were made to businesses that showed zero employees or one employee on their loan applications.

The new simplified loan application will not require PPP borrowers of $50,000 or less to calculate the complicated full-time-equivalent employees (FTE) or reductions in employee salary or wages. Under the new rule, reductions in FTE or employee wages will not reduce the loan forgiveness for these businesses.

The only required calculation on this new application is reporting the amount of forgiveness you are applying for.

However, borrowers of $50,000 or less are still required to make certification and provide documentation to their lender (bank) for payroll and non-payroll costs.

Your Next Step To PPP Loan Forgiveness

Review and familiarize yourself with Form 3508S (PPP Loan Forgiveness application for loans less than $50,000) and read the instruction on filling it out.

They require the following supporting documents to be submitted with the PPP loan application (Form 3508S):

  • Payroll (bank statements or reports from payroll company showing proof of payment for employee’s compensation)
  • Payroll tax filings with the IRS (i.e., Form 941s)
  • State quarterly wage reporting and unemployment insurance tax filings
  • Health Insurance (receipts, canceled checks, or bank statement showing employer’s payments made to employee’s insurance)
  • Retirement Benefits (receipts, canceled checks, or bank statement showing employer’s payments made to employee’s retirement plans)
  • Business Utilities (invoices from February 2020 through the covered period with receipts, canceled checks, or bank Statements)
  • Business Rent (copy of the current lease agreement and receipts or canceled checks showing payments during the covered period)

For Schedule C, private practice owner with no employees, you have no payroll. They based your PPP loan on your 2019 net profit. Your loan forgiveness will be based on that same amount, but you will still need to use 60 percent of the loan proceeds to pay yourself. The rest of the 40% will need to be used for interest, rent, and utilities.

Depending on when you received your loan and based on your loan agreement, your covered period is eight weeks or 24 weeks. The covered period is the duration of time you must spend your loan after receiving it from the bank.

According to the SBA, the covered period is:

  • The 24-week (168-day) period beginning on the PPP loan disbursement date, or
  • If the borrower received their PPP loan before Jun. 5, 2020, the borrower might elect to use an eight-week (56-day) or 24-week (168-day) covered period

For example, if the borrower was using a 24-week covered period and received their PPP loan proceeds on Friday, May 15, the covered period’s first day is May 15 and the last day of the covered Period is Thursday, Oct. 29. 

However, the covered period cannot extend beyond Dec. 31, 2020.

So, the covered period is when you have time to spend the loan on eligible business expenses. The current deadline to apply for the PPP forgiveness is ten months after the end of your loan’s covered period.

For instance, a borrower whose covered period ends on Oct. 29, 2020, has until Aug. 29, 2021, to apply for forgiveness before loan repayment begins.

PPP Loan Forgiveness Under $150,000

If your PPP loan is over $50,000, you are still required to complete either Form 3508 or Form 3508EZ, PPP Loan Forgiveness Applications.

The instructions for Form 3508 can be found here. For Spanish, click here.

The Instructions for the simplified application, Form 3508EZ, are located here

Businesses that laid off employees or reduced employees’ wages during the pandemic will need to complete Form 3508 for their loan to be forgiven.

Form 3508EZ is for businesses that did not reduce their employees’ wages or the number of employees by more than 25%.

Banks and small businesses state they are dealing with the complexity of Form 3580EZ and are reporting that it is taking a lot more time to apply for loan forgiveness than it was for applying for the PPP loan. 

Because of the outcry, over 100 trade groups request the Congress to approve a streamlined process for loans under $150,000, and they submitted a bill.  However, it has not been approved.

The pending bill, if approved by the Congress, will automatically forgive PPP loans under $150,000. What this means is that businesses will not have to file the forgiveness application with their bank. 

However, as mentioned earlier, we are still waiting for the Congress to approve the bill for automatic forgiveness of PPP loans.

In the meantime, businesses must apply for loan forgiveness by the deadline. 

The deadline to apply for loan forgiveness is based on the borrower’s loan agreement and covered period. Therefore, each business has its own deadline. Please see the examples above under the “Next Step” to understand what your covered period is.

As therapists, you are in the business of changing the clinical outcomes of your communities. Together, we can help you improve or get greater clarity on your practice’s financial outcome so you can provide optimal care to your clients.

At the CPA for Psychotherapists, we are a certified public accounting firm that has helped psychotherapists and small businesses for over 12 years. We have experience working with therapists in private practice, expertise in accounting and tax, and the technology to partner with businesses all over the U.S. 

If you would like our help with your PPP loan forgiveness application, request your complimentary consultation today.

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