The U.S. Small Business Administration (SBA) issued new rules over Memorial Day Weekend regarding applying for forgiveness for Paycheck Protection Program (PPP) loans. We've updated our FAQs to reflect those changes. SAFE expects Congress and the SBA to continue to make changes to the program, so please check back here for new information.
Read the SBA's latest rules here.
Find the loan forgiveness application (SBA Form 3508) here.
The U.S. Small Business Administration (SBA) is offering forgiveness of Paycheck Protection Program (PPP) loans provided businesses successfully meet certain requirements and submit documentation to their lender that shows how the funds were used. The SBA makes the final determination whether to forgive the loan based on the information provided.
We recommend the application for forgiveness be completed following the eight-week period after the loan was disbursed. This will allow time for additional revisions to the application form or supporting documentation requirements from the SBA. Current information regarding forgiveness can be found at the SBA PPP site.
To begin the PPP loan forgiveness process, PPP loan recipients will need to complete SBA Form 3508.
SBA Form 3508 includes the forgiveness application and instructions on calculating and filling out payroll cost worksheets and covered expense worksheets as well as determining the eligible forgiveness amount. The application also includes the necessary borrower certifications, as well as a listing of the documentation the borrower must submit.
Along with their application, the borrower must submit the following:
Details on the required documentation is shown on page 10 of the application and instructions.
We strongly encourage borrowers to consult with their CPA or tax professional to assist with the preparation of SBA Form 3508.
For the loan amount to be forgiven, at least 75% of your loan must be used for payroll costs. Payments to independent contractors cannot be included in the payroll costs. If you use more than 25% of the loan for non-payroll costs, then the amount of forgiveness will be reduced accordingly.
Lenders determined the loan amount by multiplying your monthly average payroll by 2.5. The monthly payroll average was based on IRS-reported wages, the amount paid by the employer for state taxes, retirement contributions, and healthcare costs. The monthly average used for the calculation did not include other costs such as employee-paid healthcare and retirement contributions, federal taxes, and payments to contract employees. The costs that went into the monthly average are the same the SBA use to determine forgiveness for the loan. By using more than those allowable expenses, the loan may not be entirely forgivable.
For sole proprietors, the loan amount was based on the 2019 Schedule C tax return. The net income was divided by 12 and that sum multiplied by 2.5. If a sole proprietor had employees, independent payroll information on the employees (IRS form 940 or 941) was added to the figure derived from the tax return.
Business are required to submit documentation to their lender reflecting certain expenses (detailed below) that start eight weeks after the loan is funded.
The following expenses made during the eight weeks of the loan can be forgiven as long as 75 percent of the amount goes toward payroll costs.
You submit your forgiveness application to SAFE after the end of the covered loan period. SAFE has 60 days after you submit the application to let you know whether and how much of the loan has been forgiven following SBA guidelines. The loan package is then sent to the SBA who has 90 days to confirm guidelines and complete the review to grant forgiveness.
You can find more information on what you will need to provide with your application on the loan forgiveness application (SBA Form 3508). It is your responsibility to provide supporting documentation to SAFE with your application to help ensure a more efficient forgiveness application process.
Documents you will need to submit with your loan forgiveness application:
Documents you’ll need to maintain for six years after the date the loan is forgiven or repaid:
How do I determine which payroll periods to include in the application? (updated 5/27/20)
You can apply for forgiveness for payroll costs incurred for the eight weeks beginning on either:
Payroll costs eligible for forgiveness can be for employees who are working and/or for those who are not currently working but you retained on the payroll.
You must maintain total number of employees on your payroll and their compensation levels by at least 75 percent. You have until June 30, 2020, to rehire any laid-off or furloughed employees and restore salary levels.
Yes, if you follow certain steps by the June 30, 2020, deadline to restore staffing levels.
For the number of employees:
The amount forgiven will be reduced by the same percentage as the percentage reduction in full-time-equivalent employees. First, you need to pick a reference point to determine your initial FTE count.
Say you had an average of 10 FTEs during the reference period, but after the eight-week PPP loan period you had eight FTEs. That is a 20% reduction in the number of employees. Your loan forgiveness amount would thereby be reduced by 20%.
For more information on how to determine FTE counts in reference to the PPP forgiveness process, please see the interim rule.
For a change in salaries:
Loan forgiveness is affected if salaries are reduced by more than 25 percent. This reduction is calculated by individual employee, not in the aggregate. The amount that will not be forgiven will be the same as the amount of salary reduction over 25 percent. For example, if you reduced an employee’s salary from $1,000 a week to $750 a week, you would be eligible for loan forgiveness. But, if you reduce the salary to $700, you would not be forgiven for the $50 difference each week. After the eight-week loan period, $400 ($50 times eight weeks) of the loan would not be forgiven.
It’s important to note that you don’t have to report a change in salaries if it was due to a reduction in FTEs. That way you’re not facing double penalties.
The amount of loan forgiveness you’re eligible for is 8/52 (or 15.38%) of your 2019 compensation (eight weeks out of 52). Eligible compensation is limited to cash compensation, employer retirement, and health care contributions made on your behalf.
Schedule C filers are capped by the amount of their owner compensation replacement based on their 2019 net profit.
General partners are capped by the amount of their 2019 net earnings from self-employment (reduced by claimed section 179 expense deduction, unreimbursed partnership expenses, and depletion from oil and gas properties) multiplied by 0.9235.
No additional forgiveness is provided for retirement or health insurance contributions for self-employed individuals, including Schedule C filers and general partners, as such expenses are paid out of their net self-employment income
Initial payments are deferred for six months. After that, you have 18 months to repay the loan at a 1% interest rate. There is no pre-payment penalty, so you may pay off the balance at any time with no additional fees.
Please contact our Business Banking team directly at email@example.com. Due to a higher than normal activity, there may be a delay in response. We thank you for your patience and understanding.
SAFE Credit Union understands how important the Paycheck Protection Program loan program by the U.S. Small Business Administration is for our Business Banking members. This is a stressful time for many of you, and we know that the PPP process may have added to your frustration as you wait to learn the status of your application and whether you will receive funding.
If you submitted an application with SAFE, we will be in contact with you to provide an update on its status. We may require additional documentation from you to complete the process. However, please be aware that due to current circumstances, we are not able to guarantee funding.
We wish we had solid answers for you. But unfortunately many financial institutions, including SAFE, encountered numerous challenges during a rushed process compounded by extraordinary demand. SAFE made the decision to participate in the PPP because we thought it the right thing to do for our Business Banking members and our community. But we, like many other financial institutions, faced significant challenges.
We’d like to share with you some insights into some of those issues. We hope it provides some transparency into the situation and inform you about what SAFE is doing now to assist our Business Banking members.
SAFE stopped accepting PPP applications on Saturday, April 11, due to an overwhelming number submitted. SAFE made that difficult decision in order to focus our limited resources to help applicants already in the queue as it became apparent that the PPP was quickly running out of money. Our Business Banking team had been working non-stop preparing the incoming applications to ensure they were complete. However, we encountered many applications from non-qualified applicants or that were either incomplete, incorrect, or otherwise needed additional information for them to move forward.
Having accurate and complete applications is essential to ensuring a smooth lending process. SBA loans, including PPP loans, are a two-step approval process. Here’s how it works. The SBA provided lenders specific requirements that had to be met and approved by lenders’ underwriting teams. Approval from the lender and SBA on the established criteria is required to grant the loan. If either the SBA or the lender decides that the requirements have not been met, the application is denied and a loan cannot be funded.
The high number of applications also overwhelmed SAFE’s SBA loan origination process, which was not set up to handle such high and immediate demand. SAFE received more than 30 times the number of SBA loan applications it receives in an entire year. The SBA also was not prepared for the huge number of applications from across the country swamping its system, leading to backlogs and more complications for lenders.
Congress approved more additional funds for the PPP and started to accept more applications on Monday, April 27. We expect those to go more quickly than the first allocation. Because of the need to swiftly submit applications to the SBA in this second round, SAFE will not be able to accept any new PPP applications.
If you have questions on this topic, please email us at firstname.lastname@example.org. Your email will be directed to our Business Banking team. The Business Banking team has the most up-to-date information about your application. Due to the very fluid nature of the process, our call center and chat team are not able to provide you updates about the PPP. We appreciate your patience with us when responding as the Business Banking team handles the significant volume of questions. Please expect a response within 48 to 72 hours.