By Cary Zimmerman

On June 16, 2020, the Small Business Administration (SBA) issued a revised forgiveness application for its Paycheck Protection Program (PPP). The original application, on Form 3508, included several components designed to assist a borrower in calculating its forgiveness amount, taking into account employee compensation and headcount information and nonpayroll costs. While still maintaining the same general structure, the new application was revised in several key ways, which are described below. Many of the changes are intended to align the application with the Paycheck Protection Program Flexibility Act enacted on June 5, 2020.

  1. New alternative Form 3508EZ may be used by certain borrowers. This 2-page application is less onerous for borrowers that, for certain reasons, need not contend with the larger, original application. It requires a little less math and less documentation. To qualify to use the 3508EZ, the borrower must meet one of these criteria:
    • It is self-employed and have no employees;
    • It did not reduce the salaries or wages of its employees by more than 25%, and did not reduce the number or hours of its employees; or
    • It experienced reductions in business activity as a result of health directives related to COVID-19, and did not reduce the salaries or wages of its employees by more than 25%.                                                              
  1. The new 24-week “covered period” for forgiveness is incorporated. This gives borrowers a much better opportunity to exhaust their loan proceeds on forgivable expenses, since it is 3 times longer than the original 8-week period. However, the longer period also (i) requires that the borrower keep documentation reflecting application of the proceeds to those expenses for the longer period and (ii) could result in a greater reduction in forgiveness based on qualifying salary or wage reductions (see items #4 and #5 below). Note, too, that a borrower may elect out of the 24-week period and use the original 8-week period, if it makes sense—for example, if it already has exhausted the proceeds on forgivable expenses within that timeframe.
  1. Nonpayroll costs may tally up to 40%, rather than the original 25% cap. In determining the forgivable amount, one of the figures a borrower must calculate in the application is the amount of the borrower’s payroll costs, divided by 0.60. The resulting number operates as a ceiling on the forgivable amount—if the resulting number is lower than either (i) the original loan amount or (ii) the total forgivable payroll and nonpayroll costs with appropriate reductions for salary and/or FTE reductions, then the resulting number will be the amount forgiven. Originally, the borrower could spend only up to 25% on nonpayroll costs.
  1. It incorporates the new deadline of Dec. 31, 2020 (originally June 30, 2020) for a borrower to restore salary and adds an alternative milestone, the forgiveness application date, to the restoration safe harbor. The PPP rules require borrowers to reduce the forgiven amount to account for any reductions of the total annual salary, or average wages, of any employee (so long as they did not receive $100,000 in annualized salary or wage) during the 24-week (or 8-week, if so elected) period by more than 25% as compared to the period between Jan. 1, 2020 and March 31, 2020. However, if (i) the employee’s annual salary or hourly wage for the period from Feb. 15, 2020 through April 26, 2020 is less than such salary or hourly wage as of Feb. 15, 2020 and (ii) the employee’s annual salary or hourly wage as of the earlier of the date the forgiveness application is submitted or Dec. 31, 2020 is equal to or greater such salary or wage as of Feb. 15, 2020, then the salary reduction will be ignored.
  1. If a borrower cannot restore FTE count, the forgiveness reduction that otherwise would result is avoided if the borrower satisfies either of two safe harbors (only one is new). The PPP rules also require borrowers to reduce the forgiven amount to account for any reductions in headcount, as reflected in full-time equivalent employees (FTEs). Forgiveness will be reduced if the borrower’s average number of FTEs during the covered period is less than the average number of FTEs for any of the following periods: (i) The period beginning on Feb. 15, 2019 and ending on June 30, 2019; (ii) the period beginning on Jan. 1, 2020 and ending on Feb. 29, 2020; or (iii) for a seasonal employer, either of the two previous periods or any 12-week period between May 1, 2019 and Sept. 15, 2019.
    • To qualify for the first safe harbor, the borrower must calculate average FTEs for the period from Feb. 15, 2020 through April 26, 2020 and for the pay period including Feb. 15, 2020. If the FTE count for the first period is less than the FTE count for the second period, the borrower must compare the average FTEs for the second period to the total FTEs as of the earlier of Dec. 31, 2020 or the date on which the forgiveness application is submitted. If the FTE count on the earlier of those two dates is greater than the FTE count on Feb. 15, 2020, the safe harbor is met and no reduction is required.
    • To qualify for the second safe harbor, in order to avoid reduction of the forgivable amount resulting from the shutdown of a business by regulatory order, the borrower must demonstrate that it was unable to return to the same level of business activity as the business was operating at before Feb. 15, 2020 due to compliance with certain requirements or guidance from the CDC, HHS or OSHA during the period starting March 1, 2020 and ending Dec. 31, 2020 relating to the maintenance of standards for sanitation, social distancing or other worker or customer safety requirement related to COVID-19.

In addition, the application includes an exception to forgiveness reduction in the event of loss of an employee if either the borrower was unable to rehire the employee (i.e., it made a good-faith, written offer to rehire the employee that was rejected) or the employee was fired for cause, voluntarily resigned or voluntarily requested and received a reduction in hours, and the borrower was unable to hire a similarly qualified employee for the unfilled position by Dec. 31, 2020.

Please reach out to Cary Zimmerman at or 216.736.7275 or with any questions you have about how forgiveness will work under the Paycheck Protection Program or other questions you may have about financial relief programs available to small businesses.

Pin It on Pinterest

Share This