SBA releases simplified PPP forgiveness application for smaller loans, guidance for lenders on excess reported costs

On Oct. 8, SBA issued SBA Form 3508S, an alternative loan forgiveness application for Paycheck Protection Program (PPP) borrowers with loans of $50,000 or less. SBA and the Treasury “concluded that this form strikes an appropriate balance between the need for simplification in the forgiveness process with the responsibility to protect the integrity of the program and safeguard taxpayer funds,” the accompanying Interim Final Rule (IFR) states.

In summary: Form 3508S

The two-page Form 3508S includes none of the calculations and cost breakdowns included in the full application (Form 3508) and the “EZ” version (3508EZ) for determining their forgiveness amount, though the form instructions still detail how to calculate that amount; describe the required documentation; and note that SBA may still ask for information and documentation to review those calculations. 

Borrowers are asked to provide key facts and figures about their business, their loan, and their employment numbers, then confirm that the information is accurate, the requested forgiveness amount is in line with program requirements, and documentation has been provided, among other certifications. 

The new simplified form cannot be used by borrowers who together with their affiliates received loans totaling $2 million or greater. (See previous PPP guidance for details on how SBA’s affiliation rules apply, as well as exemptions for certain faith-based organizations.)

The result is that borrowers now have up to three SBA form options for filing, depending on their circumstances and the characteristics of their loan. Accordingly, the IFR instructs that various references to the forms in earlier rules be replaced with “SBA Form 3508, 3508EZ, 3508S, or lender’s equivalent form.”

Exemptions from forgiveness reductions

Borrowers who qualify to use Form 3508S – and do so – are exempt from reductions in their forgiveness amount based on reductions in their full-time equivalent employees or in employee salary or wages. “The [SBA] administrator and the [Treasury] Secretary determined that these exemptions are an appropriate exercise of their joint rulemaking authority to grant de minimis exemptions under … the CARES Act,” the IFR states. “[They] believe that the additional exemptions set forth above are consistent with the purposes of the CARES Act, including to provide much-needed financial assistance to a broad range of small businesses, and provide borrowers appropriate flexibility in the current economic climate.”

Lender responsibilities

To account for the new form, the IFR provides an addition to the revised First Loan Review Rule’s Part III.2.a, “What should a lender review?”, outlining what lenders should do if a borrower submits Form 3508S or the lender’s equivalent:

1. “Confirm receipt of the borrower certifications contained in the SBA Form 3508S or lender’s equivalent form.

2. “Confirm receipt of the documentation the borrower must submit to aid in verifying payroll and nonpayroll costs, as specific in the instructions to the SBA Form 3508S or lender’s equivalent form.”

The IFR notes that it is the borrower’s responsibility to provide an accurate calculation of their forgiveness amount, to attest to the accuracy of the information and calculations on their application, and to provide the requirement documentation; “lenders may rely on borrower representations.”

Excess costs

In some cases, a borrower may submit to a lender documentation of eligible payroll and nonpayroll costs that exceed the amount of the borrower’s PPP loan. To address this situation, the IFR concludes with guidance for lenders:

“The amount of loan forgiveness that a borrower may receive cannot exceed the principal amount of the PPP loan. Whether a borrower submits SBA Form 3508, 3508EZ, 3508S, or lender’s equivalent form, a lender should confirm receipt of the documentation the borrower is required to submit to aid in verifying payroll and nonpayroll costs, and, if applicable (for SBA Form 3508, 3508EZ, or lender’s equivalent form), confirm the borrower’s calculations on the borrower’s Loan Forgiveness Application, up to the amount required to reach the requested Forgiveness Amount.”

For more information, see the full IFR, or download the Form 3508S or its instructions.