Which PPP Forgiveness Application Fits Your Business: 3508, 3508EZ or 3508S
November 18, 2020
November 18, 2020
As of May 28, 2021, the Paycheck Protection Program has run out of funding. You can learn more about the PPP with our COVID-19 resource hub.
When the U.S. Small Business Administration (SBA) launched the Paycheck Protection Program, the emergency lending initiative was a lifeline for business owners trying to navigate COVID and all the coronavirus-related changes (like social distancing) that were (and are) negatively impacting their small businesses.
Not only did PPP loans get businesses the funds they needed to keep their businesses moving forward during the pandemic, but if borrowers used the loan proceeds on eligible expenses during the 24-week covered period (the covered period was originally only eight weeks, covered, but the Paycheck Protection Program Flexibility Act, which was signed into law in early June, extended the covered period to 24 weeks), up to 100 percent of their PPP loan amount would be eligible for loan forgiveness.
As 2020 draws to a close, many businesses are nearing the end of the covered period. But not all PPP loans are automatically forgiven; in order to qualify for forgiveness, business owners will need to submit a PPP loan forgiveness application.
Before we jump into loan forgiveness application forms (and how to determine which form is right for your business), letâ€™s quickly review the requirements for PPP loan forgiveness.
Eligibility requirements for PPP loan forgiveness include:
In addition, in order to qualify for the full loan forgiveness amount, businesses must maintain their workforce, which includes:
Businesses that reduced their number of employees or employee compensation will have their amount of loan forgiveness reduced proportionately.
There are exemptions for certain businesses that have had to lower employee headcount; for example, under the FTE Reduction Safe Harbor, businesses have until December 31, 2020 to restore their workforce before facing reduced loan forgivenessâ€”and additional FTE exemptions passed with the Paycheck Protection Program Flexibility Act allow employers to qualify for full loan forgiveness if they can document in good faith that theyâ€™re unable to return to their standard level of business activity due to COVID-19 safety protocols or theyâ€™re unable to rehire former employees and is unable to find qualified workers to fill open positionsâ€”even if the business is unable to restore their workforce by the December deadline.
PPP loan forgiveness applicationsâ€”and determining which application is the right fit for your business
Now that you understand how to qualify for PPP loan forgiveness, letâ€™s cover the actual forgiveness processâ€”and, more specifically, the different loan forgiveness applications.
There are three different forms PPP borrowers can use to apply for loan forgiveness: SBA Form 3580S, SBA Form 3508EZ, and SBA Form 3508.
In early October, SBA Form 3580S was released specifically for borrowers with PPP loans of $50,000 or less. Under the new interim final rule, borrowers who received $50,000 or less in PPP loan funds are exempt from loan forgiveness reductions due to a reduction in FTEs or employee salaries or hourly wages.
Under this rule, borrowers that a) received a PPP loan of $50,000 or less, and b) spent their loan proceeds on qualified expenses automatically qualify for full loan forgiveness.
(The only exception to this rule is if the business is affiliated with other businesses. In that situation, the total PPP loans across all affiliated businesses can not exceed $2 million; if it does, the business can not use form 3580Sâ€”even if their individual PPP loan was for $50,000 or less.)
SBA Form 3580S is the most simple and streamlined of the loan forgiveness applicationsâ€”and the easiest for borrowers to complete and submit.
SBA Form 3508EZ is for borrowers with PPP loan amounts of more than $50,000â€”and, similar to Form 2508S, itâ€™s a shorter, more streamlined application with fewer calculations than the full loan forgiveness application, SBA Form 3508.
In order for businesses to be eligible for SBA Form 3508EZ, they must meet one of the three following requirements:
Businesses that qualify for SBA Form 3508EZ donâ€™t have to go through the process of filling out a Schedule A worksheet.
All other borrowersâ€”including borrowers who reduced employee headcount and want to qualify for an exemption under the FTE Safe Harbor and self-employed individuals, sole proprietors, independent contractors who donâ€™t meet the requirements for Form 3508EZâ€”will need to fill out the original loan forgiveness application, SBA Form 3508.
SBA Form 3508 is the most comprehensive of the three loan forgiveness applications and requires applicants to complete the Schedule A worksheet, which outlines expenses and calculates reductions to FTEs and employee salaries/wages.
Keep in mind that, depending on your application and how your PPP loan funds were used, you may need to submit supporting documentation to your lender (for example, payroll tax filings, payment receipts, account statements, tax forms, and/or cancelled checks) in order to qualify for loan forgiveness.
Navigating the PPP loan forgiveness application process can feel overwhelmingâ€”particularly because there are three different applications. But now that you understand the differences between SBA Form 3508, SBA Form 3508EZ, and SBA Form 3508S, youâ€™re armed with the information you need to choose, complete, and submit the right application for your businessâ€”and get the ball rolling on your loan forgiveness process.
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