Small business owners who received Paycheck Protection Program loans for less than $50,000 will receive forgiveness even if they have reduced their number of employees, according to guidance released yesterday by the U.S. Small Business Administration.
These borrowers can now complete a new one-page forgiveness application that provides an exemption for any reductions in full-time equivalent employees or reductions in employee salary or wages.
“The new form introduced today demonstrates our relentless commitment to using every tool in our toolbelt to help small businesses and the banks that have participated in this program,” SBA Administrator Jovita Carranza said in a statement. “We are continuing to ensure that small businesses are supported as they recover.”
The new guidance does not apply to small business owners who received PPP loans of $50,000 or more. These borrowers could still see the amount of forgiveness affected by reductions in employees or salary. Businesses that together with its affiliates received loans totaling $2 million or greater also cannot use the new application.
Borrowers will still need to submit documents showing the payroll and other costs covered by the PPP, and lenders will still need to confirm that the necessary documents were received.
While simplifying the process for small business owners and lenders, yesterday’s move by the SBA and Treasury Department falls short of the automatic forgiveness for loans less than $150,000 that many stakeholders would like to see. Blanket forgiveness would require legislation by Congress.
“We are committed to making the PPP forgiveness process as simple as possible while also protecting against fraud and misuse of funds,” Treasury Secretary Steven Mnuchin said in a statement. “We continue to favor additional legislation to further simplify the forgiveness process.”
In an interim final rule explaining the new forgiveness application, known as SBA Form 3508S, the SBA said approximately 3.57 million of the outstanding PPP loans were for $50,000 or less, representing about $62 billion of the $525 billion in PPP loans. The SBA estimates that 1.71 million PPP of these smaller loans were made to businesses that have no employees other than the owner, based on loan applications that reported zero or one employee.
About 74,000 of the 118,000 PPP loans in Massachusetts were for less than $50,000, according to SBA data.
The SBA in the interim final rule released Thursday also clarified that business owners cannot receive loan forgiveness that exceeds the amount of the principal amount of the original loan, even if the documentation shows that costs exceeded the loan amount. In an update to its PPP frequently asked questions, the SBA also said lenders do not need to change the original promissory note for borrowers who had taken loans before the loan repayment deferral period had been extended from six to 10 months.
