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We have begun preparing Paycheck Protection Program (PPP) loan forgiveness applications. There is a lot to this forgiveness process so here is a highlight of some key considerations as your loan is submitted to your lender and then the Small Business Administration (SBA). This highlight covers things you should be aware when it comes to the following:

  • PPP loan forgiveness timeline
  • Different loan forgiveness forms
  • Key calculations for PPP loan forgiveness forms
  • How to handle non-payroll costs
  • Our expert recommendations

PPP Loan Forgiveness Timeline

There are a few key numbers to be aware of with the loan forgiveness timeline.

  • 24-Week Loan Coverage Period
  • 10-Month Forgiveness Window
  • 60-Day Lender Review Period
  • 90-Day SBA Review Period
24-Week Loan Coverage Period

As a reminder, every business had the option (and some cases the only option) to use 24 weeks for spending the PPP loan. This is a big increase over the 8-week period that was used when the program launched. We recommend all businesses use the 24-week coverage period as payroll costs should more than cover the loan forgiveness alleviating the need to track down the additional documentation for non-payroll costs. With that recommendation, we also recommend businesses wait until the 24 weeks is completed to maximize costs submitted in case there are any issues brought up during the lender or SBA reviews.

10-Month Forgiveness Window

Borrowers have 10 months after the loan coverage period ends to submit their forgiveness application. If you received your loan in mid-April, your 24-week coverage period ended in October and you have until August 2021 to submit your forgiveness application. We see many businesses wanting to rush, but you have time.

60-Day Lender Review Period

Lenders (banks) will have 60 days to review your loan forgiveness application and supporting documentation before submitting a decision to the SBA.

90-Day SBA Review Period

Once your lender approves and submits your forgiveness application, the SBA will have 90 days to decide on your loan. A loan review may occur which would require additional information, but we expect reviews to be rare due to the number of PPP loans.

PPP Loan Forgiveness Forms

There are 3 choices in forms for forgiveness with distinct qualifications to be able to use the different forms.

Form 3508S

A borrower may use this form if their loan amounted to $50,000 or less. This is a simple form that doesn’t require any calculations but has a number of certifications. Key certifications include:

  • Forgiveness amount was only for payroll costs, business mortgage interest, business rent or lease payments, or business utility payments
  • Forgiveness amount should have been 60% from payroll costs
  • Limits on how much was applied to owners/self-employed/partners
  • Required documents were provided to the lender
Form 3508EZ

This form can be used if:

  • The borrower did not reduce the number of employees or the average paid hours between January 1, 2020 and the end of the Covered Period OR
  • The borrower was unable to operate between February 14, 2020 and the end of the Covered Period due to compliance with guidance from government requirements.

Also, a borrower could not reduce salaries or wages by more than 25 percent during the Coverage Period as compared to the period between January 1, 2020 and March 31, 2020.

There are many other certifications (including the ones noted on Form 3508S), but these are the key ones. If there were reductions in pay or employees, a business would need to use the regular Form 3508.

The information required here is fairly basic (although the calculations and document may not be):

  • Payroll costs
  • Mortgage Interest Payments
  • Rent or Lease Payments
  • Utility Payments
Form 3508

The big reason to use this form is if there were reductions in pay, staff or hours. If this is the case, there is a ratio that is applied to reduce the forgivable costs. Herein is another reason to use the full 24-week loan coverage period as there will be a large number to reduce and still achieve full forgiveness.

Key PPP Loan Forgiveness Form Calculations

There are a few areas that can trip people up from our experience.

FTE Reduction

While only Form 3508 requires this calculation, it may be necessary to do this calculation to be able to answer that you did not reduce headcount or hours. We also have seen lenders requiring FTE calculations to prove eligibility for Form 3508EZ.

Wage Reduction

This can be easy: did you cut employee pay. Note that this only applies to employees who make less than $100,000 annually. If the answer is yes, this calculation can be a bit sophisticated to figure out what the total Salary / Wage reduction will be.

Forgivable Wages

There are a number of caps to be aware of here.

  • Owners are capped at the lower of $20,833 or a pro-rated 2019 compensation (which is a tricky calculation)
  • High earners are capped at $46,154 for the 24-week coverage period

Non-Payroll Costs

There are more costs that can be submitted (business mortgage interest, business rent or lease payments, or business utility payments), but our opinion at this point is to not submit those costs unless needed to obtain full loan forgiveness. Our reasoning is to not make the loan review process any more complicated for your lender or the SBA. Should you need to do as much, make sure there is clear documentation of the amount spent and when.

PPP Loan Forgiveness Application Recommendations

Here are our recommendations for forgiveness.

Application Timing

We see some financial professionals recommending that businesses wait to submit their applications, as Congress or the SBA may simplify the process. With the ongoing election contention, we expect changes to be unlikely until after the Presidential Inauguration on January 20, 2021.

There is the hope of simplified forgiveness for all, but the process could only be simplified in a few areas:

  • Calculations required
  • Documentation required
  • Loan threshold to use 3508S

The process has already been simplified with forms 3508S and 3508EZ so we are somewhat doubtful if it will be simplified further other than increasing the loan amount to use 3508S.

Coverage Period

As noted in this article, we recommend everyone use the 24-week coverage period. It simplifies forgiveness

Costs Submitted

We believe less is more. If you can achieve full forgiveness with just payroll costs, we recommend only submitting those costs. We may change our position after working with different lenders, but we believe simplifying what they need to review will make life easier for them and you.

Do or Don’t Prepare It Yourself?

The forms themselves are fairly simple. The calculations for payroll costs are less so. The full-time equivalence and wage reduction calculations are somewhat tricky. A good accounting firm should be able to gather all the necessary documents, pull the right payroll reports, and ensure all calculations are correct and defendable. While the comparison is extreme, ask yourself if you like preparing your own taxes or use an accountant. This is along the same spectrum.

Needless to say, LedgerGurus is prepared to help businesses with their PPP forgiveness process. Contact us here.


Be sure to read our subsequent article Paycheck Protection Program Loan Forgiveness Tax Implications as you consider application timing.