SBA Paycheck Protection Program FAQs

What Documents Do I Need To Apply For Forgiveness?

  • Either Form 3508 or Form 3508EZ 
  • Either Form 3508 Instructions or Form 3508EZ Instructions
  • Blackhawk Bank Calculator - Original or EZ version (see your banker for this)
  • Documented payroll hours and expenses at the per-employee level
    • For the actual 8 week or 24 week Covered Period beginning on the date your loan was funded
    • Payroll hours for the period of 2/15/2019 thru 6/30/2019
    • Payroll hours for the period of 1/1/2020 thru 2/29/2020
    • Average payroll at the employee level from 1/1/2020 thru 3/31/2020
    • FTEE of the date of your submission of Forgiveness Application or 12/31/2020, whichever is sooner 
  • Copies of all lease agreements and proof of payment during your Covered Period
  • Copies of all utility bills and proof of payments during your Covered Period
  • Copies of all mortgage and other loan Notes and proof of payments during the Covered Period (non-Blackhawk Bank)
  • For Self-Employed / Independent Contractors, we will need a copy of your 2019 IRS Form 1040, Schedule C, from the tax return
  • Additionally, if any lease, utility, or other debt is applicable, copies will also be required
  • If you have a question, please submit it to SBAInquiry@BlackhawkBank.com 

 

Application Questions

DID THE SBA RELEASE A NEW FORGIVENESS APPLICATION?

Yes, on June 17th the SBA and Treasury released the second draft of the Forgiveness Application as well as a new “EZ” Application. These updated or new applications are the result of the passage of the Paycheck Protection Program Flexibility Act (PPPFA) of 2020.  These may not be the final version.

There were 3 main modifications to the program based on the PPPFA. They have extended the covered period from 8 to 24 weeks, the payroll related portion of forgiveness was reduced from 75% to 60%, and there is a potential to extend repayment of the unforgiven portion of the loan from 2 year to as much as 5 years.

While the applications are now available, answers to specific questions are still to come.

THERE ARE TWO NEW FORGIVENESS APPLICATIONS AVAILABLE. WHAT IS THE DIFFERENCE?

On Wednesday, June 17th, SBA released two Forgiveness Applications. Form 3508 is the full Forgiveness Application and was re-released to simply update dates and language to accommodate the changes made as a result of the Paycheck Protection Program Flexibility Act of 2020 (PPPFA).

A new Form 3508EZ was released for the first time that day and is intended to simplify the Forgiveness process for borrowers that:

  • Is a self-employed individual, independent contractor, or sole proprietor who had no employees at the time of loan application and did not include any employee salaries as part of the loan request; OR
  • Have not reduced the salary or hourly wages of employees by more than 25% during the covered period as compared to the reference period, AND did not reduce the number of employees or the average paid hours of employees between January 1, 2020 and the end of their covered period; OR
  • Have not reduced the salary or hourly wages of employees by more than 25% during the covered period as compared to the reference period, AND was unable to operate during the covered period at the same level as before February 15, 2020 due to compliance with established guidance by certain health care agencies

Should any of these 3 situations apply to your business, the simplified Form 3905EZ may be used

If none of these situations apply to your business then you must use the longer form 3508 that will require the submission of a more complex document.

In either case, you will need to retain the necessary documentation to support everything you are attesting and certifying for 6 years after the date on which your loan has been completely paid in full. The SBA reserves the right to audit your records for this period of time and these supporting documents will need to be readily available.

SINCE THE NEW APPLICATIONS ARE AVAILABLE, SHOULD MY BUSINESS APPLY NOW OR WAIT FOR THE 24-WEEK COVERED PERIOD TO ELAPSE?

A great question many clients have asked. I would suggest that if, during the initial 8-week covered period, you are able to achieve 100% loan forgiveness based upon the updated guidance, including the 60/40 payroll/non-payroll expense structure, there would really be no reason to wait. In fact, I would think that you would not want to risk the program changing that may somehow impact your forgiveness.

Most self-employed persons, independent contractors, or sole proprietors having qualified for the loan by submitting their Schedule C of the 2019 IRS 1040 would fall into this category of full loan forgiveness over the original 8-week covered period

However, if you have not yet achieved full loan forgiveness and believe you will, you may wish to wait for the additional allowed time the extension of the covered period allows. In most cases, extending this covered period will help businesses qualify a larger portion of their loan for forgiveness. As with any chosen delay, understand that changes to the program may not work in your favor and changes to the operation of your business may impact the amount of forgiveness in the future.

 

Payroll Questions

CAN I INCLUDE THE EMPLOYER PORTION OF FEDERAL EMPLOYMENT TAXES, LIKE FICA, IN MY FORGIVENESS AMOUNT?

A: No, Federal taxes paid by the employer are not eligible for Forgiveness under the PPP loan. Gross employee wages are allowed and state or local employer taxes on payroll are allowed, but not employer paid Federal taxes. 

WHAT DO YOU MEAN WHEN YOU SAY 60% OF THE POTENTIALLY ELIGIBLE FORGIVENESS AMOUNT MUST BE FOR PAYROLL?

A: A quick example - let's say that your company's eligible payroll expenses for the 8 or 24-week covered period is $10,000 and when the potentially eligible non-payroll expenses, like interest, utilities and rent, add up they total $7,000. In this example, a company would not potentially be eligible for the full $17,000 in Forgiveness because the $7,000 is more than 40% of the $17,000. A company would be limited in that example to $16,666. And, therefore, only $6,666 of the $7,000 in other expenses could be forgiven. A minimum of 60% of the potential Forgiveness amount must be used for payroll related expenditures with the maximum limited to the entire loan balance, plus interest. 

WHEN CALCULATING WHAT PAYROLL COSTS CAN BE POTENTIALLY ELIGIBLE FOR FORGIVENESS, CAN I INCLUDE PREMIUM PAY (ex- hazard pay) OR BONUSES PAID IN THE COVERED PERIOD?

A: There is nothing in the current guidance that would indicate a temporary increase in hourly or salary would be excluded as long as it would meet the definition of "incurred and paid". However, potentially forgivable expenses will be limited to the annualized upper end of $100,000 as prorated over the covered period. Additional restriction also applies to owners.

DO DEFINED BENEFIT PLAN PAYMENTS QUALIFY?

A: Yes, payments made for retirement benefits are eligible for potential Forgiveness for most employees. However, the "incurred and paid" issue will still apply. Self employed persons and general partners are not able to use retirement expenses as a forgivable expense. 

I AM A SELF-EMPLOYED INDIVIDUAL WITH NO EMPLOYEES OR OTHER ELIGIBLE EXPENSES. HOW WILL YOU CALCULATE MY FORGIVENESS?

A: Self-employed individuals with no employees or other eligible expenses such as deductible interest, utilities, or rent will calculate forgiveness by simply determining the 2019 net income as noted on your 2019 IRS Form 1040 Schedule C, line 31. Divide this amount (capped at $100,000) by 52 weeks and then multiple that number by 8 weeks of the covered period ($15,385 cap). If the 24 week period is chosen, then the forgiveness amount will be calculated by using 2.5x the monthly average of 2019 net income as noted on your 2019 IRS Form 1040 Schedule C, line 31.

HOW SHOULD I TREAT PEOPLE WORKING FOR MY COMPANY THAT ARE INDEPENDENT CONTRACTORS AND WHOSE PAY IS DOCUMENTED VIA A 1099, RATHER THAN A W-2?

A: Independent contractors are not eligible to be counted on payroll for your company and would also not be considered in the Forgiveness calculations. Independent contractors were eligible to apply for PPP loans on their own, but not on your application. 

WE HAVE LAID PEOPLE OFF BECAUSE WE WERE REQUIRED TO CLOSE OUR BUSINESS. WILL THAT IMPACT HOW MUCH OF THIS LOAN CAN BE FORGIVEN?

A: New guidance suggests the answer here is, “It depends”.

If the you were unable to operate between February 15, 2020, and the end of the Covered Period at the same level of business activity as before February 15, 2020 due to compliance with requirements established or guidance issued between March 1, 2020 and December 31, 2020, by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to the maintenance of standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19, then you would have been considered achieving a safe harbor.

If the reasons for laying off people are not tied specifically to the above, then yes, you may be subject to reduction of forgiveness.

WHAT HAPPENS IF MY ENTIRE LOAN AMOUNT CANNOT BE FORGIVEN AT THE END OF THIS "COVERED PERIOD"? WHAT HAPPENS TO THE REMAINDER OF THIS LOAN?

A: If the total amount of your initial loan cannot be forgiven based on the guidance and rules of the Forgiveness calculation, the remainder of your loan will need to be repaid. Those remaining amounts will have the period until forgiveness is determined by the SBA deferred (retroactive to date of initial funding) and then there would be repayment of the remaining balance over a term mutually agreed to by both the bank and the client, not to exceed 5 years from the original date of funding. The interest rate is 1% and will accrue during the entire term of the loan. 

WILL THE FORGIVENESS AMOUNT BE REDUCED IF WE LAID OFF EMPLOYEES, OFFERED TO REHIRE THE SAME EMPLOYEES, BUT THE EMPLOYEES DECLINED THE OFFER ?

A: No. As an exercise of the Administrator’s and the Secretary’s authority under Section 1106(d)(6) of the CARES Act to prescribe regulations granting de minimis exemptions from the Act’s limits on loan forgiveness, SBA and Treasury intend to issue an interim final rule excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and same number of hours) from the CARES Act’s loan forgiveness reduction calculation. The interim final rule will specify that, to qualify for this exception, the borrower must have made a good faith, written offer of rehire, and the employee’s rejection of that offer must be documented by the borrower. Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation. 

Mortgage or Other Interest & Lease Questions

WHEN LOOKING AT MORTGAGE INTEREST, DO AGREEMENT OR CONTRACT FOR DEED TRANSACTIONS QUALIFY?

A: There would be nothing specific about an agreement or contract for deed situation that would exclude it from being acceptable. In these situations, the "lender" is simply the seller rather than a traditional bank. All of the same documentation requirements would still be present, however. The contract would have to be dated prior to 2/15/2020, it would include just the interest paid, not principal, and proof of payment would still be required for the "covered period". 

WOULD THE INTEREST I PAID ON MY LINE OF CREDIT QUALIFY?

A: Yes, recent guidance suggests interest paid by the business on real or personal property debt would be a forgivable expense. Together with other non-payroll expenses are limited to 40% of the total potential forgiveness amount.

 
Rent Questions

CAN I PREPAY MY RENT DURING THIS 8-WEEK PERIOD TO INCLUDE IT IN THE FORGIVENESS CALCULATION?

A: We believe the "incurred and paid" element would impact this. While the specific definition still needs to be provided, it would appear that the intent of this program would not allow you to "prepay" any expenses and have those expenses qualify for Forgiveness. 

 
Utilities Questions
WHAT UTILITIES WILL BE CONSIDERED AS A QUALIFIED EXPENSE UNDER THIS PROGRAM?

A: There has been no specific guidance on what may qualify. Most that will likely qualify are very logical, such as gas, electric, water, telephone, garbage, and internet. However, there may be other expenses that will qualify as well. Please be sure to track and document all that you believe may qualify so that you are prepared either way. However, in extending the covered period to 24 weeks, questionable eligibility will be far less of an issue.


General Questions

WHAT IS THE MATURITY DATE OF A PPP LOAN? 

A: If a PPP loan received an SBA loan number on or after June 5, 2020, the loan has a five-year maturity. If a PPP loan received an SBA loan number before June 5, 2020, the loan has a two-year maturity, unless the borrower and lender mutually agree to extend the term of the loan to five years. The promissory note for the PPP loan will state the term of the loan.

DO I NEED TO KEEP A SEPARATE ACCOUNT FROM WHICH TO PAY ALL OF THESE EXPENSES? 

A: You do not need to maintain a specific account to track these expenses. While it may be easier for you to track in that way, it is completely up to you how you manage to track eligible expenses. When preparing for the Forgiveness process at the end of 8-week "covered period" you will need to provide proof that these qualified expenses have been "incurred and paid" during this period. 

WHAT DOES THE TERM "INCURRED AND PAID" ACTUALLY MEAN?

A: For eligible expenses paid during the covered period would likely be allowed. Further, expenses that were incurred during the covered period and paid at the next due date, even if outside the covered period, would also likely qualify. 

WILL PROOF OF PAYMENT BE ON A CASH OR ACCRUAL BASIS?

A: While this topic has not specifically been addressed, all indications are that you will need to show proof that the expense has been paid during the covered period or at the next due date following the covered period and not simply accrued for. 

I HAVE HEARD THAT THE FORGIVABLE PORTION OF THIS LOAN WILL NOT BE TAXABLE LIKE OTHER LOAN FORGIVENESS IS. IS THAT TRUE?

A: While the program has made clear that loan Forgiveness under this program will not be subject to typical loan Forgiveness tax treatment, there are other questions that have not yet been made clear by the individual states or by the Internal Revenue Service. It would be our recommendation that you consult with a tax professional when preparing for 2020 tax planning or preparation. 

I RECEIVED $10,000 FROM THE SBA'S ECONOMIC INJURY DISASTER LOAN (EIDL) PROGRAM AFTER RECEIVING MY PPP LOAN. DO I HAVE TO REPAY THAT OR NET IT OUT OF MY FORGIVENESS CALCULATIONS?

A: The SBA will verify the status of your EDIL Loan during their review of your PPP Forgiveness application and one of the following scenarios will apply:

  • An EIDL Loan May Not Be Refinanced with a PPP Loan When:
  • The PPP Borrower received the EIDL loan before January 31, 2020 or after April 3, 2020.

An EIDL Loan is Not Required to Be Refinanced with a PPP Loan When:

  • The PPP Borrower received funds from an EIDL loan from January 31, 2020 through April 3, 2020 and the PPP Borrower used the EIDL loan for purposes other than payroll costs.

A PPP Loan Must Be Used to Refinance the Full Amount of the EIDL Loan When:

  • The PPP Borrower received funds from the EIDL loan from January 31, 2020 through April 3, 2020; and The PPP Borrower used the EIDL loan funds to pay payroll costs.

NOTE: The amount of the EIDL loan to be refinanced does not include the amount of any EIDL “advance” (also referred to as an EIDL “grant”) received by the PPP Borrower, because the EIDL advance does not need to be repaid.

SHOULD I BE CONSIDERING RETURNING THE FUNDS IF MY BUSINESS HAS BEEN DOING OKAY? AM I GOING TO BE AUDITED?

A: While current guidance suggests that all loans less than $2 million would be deemed to have met the certification that economic uncertainty made the loan request necessary. However, any application can be audited by the SBA both during the program and for 6 years after the loan is paid in full.

IS THE SBA EXTENDING THE SAFE HARBOR REPAYMENT DEADLINE?

Yes, the SBA announced it is extending by one week the repayment date for the Paycheck Protection Program Safe Harbor. In an update to its FAQs, the Treasury Department cited guidance reminding borrowers to carefully review the required certification on the Borrower Application Form that current economic uncertainty makes their loan request necessary to support their ongoing operations.

SBA guidance and regulations provide that any borrowers that applied for a PPP loan prior to April 24, 2020 and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith. In the latest update to its FAQs, Treasury said the SBA is extending the repayment date for this Safe Harbor to May 14, 2020. According to Treasury, SBA will implement the extension through a revision to its interim final rule providing the Safe Harbor, and it intends to provide additional guidance before May 14, 2020.  An additional IFR was then released as follow up to FAQ update issued May 13, 2020 which further extended the Safe Harbor provision through May 18, 2020.

HOW WILL THE SBA REVIEW BORROWERS' GOOD-FAITH CERTIFICATION CONCERNING THE NECESSITY OF THEIR REQUEST?

A. When submitting a PPP application, all borrowers were required to certify in good faith that "[c]urrent economic uncertainty makes this loan necessary to support the ongoing operations of the Applicant." The agency today, in consultation with the Department of Treasury, has determined that the following safe harbor will apply to SBA's review of PPP loans with respect to this issue:

Any borrower that, together with its affiliates, received PPP loans with an original principal
amount of less than $2 million will be deemed to have made the required certification
concerning the necessity of the loan request in good faith. 

The guidance comes shortly before a May 14 deadline for PPP borrowers who did have access to other sources of capital to return funds.  An additional IFR was then released as follow up to FAQ update issued May 13, 2020 which further extended the Safe Harbor provision through May 18, 2020.

Rationale: SBA has determined that this safe harbor is appropriate because borrowers with loans below this threshold are generally less likely to have had access to adequate sources of liquidity in the current economic environment than borrowers that obtained larger loans. This safe harbor will also promote economic certainty as PPP borrowers with more limited resources endeavor to retain and rehire employees. In addition, given the large volume of PPP loans, this approach will enable SBA to conserve its finite audit resources and focus its reviews on larger loans, where the compliance effort may yield higher returns.

DOES THE SAFE HARBOR CLARIFICATION CHANGE ANYTHING FOR BORROWERS WITH LOANS GREATER THAN $2 MILLION?

A. The SBA recognizes that borrowers with loans greater than $2 million that do not satisfy this safe harbor may still have an adequate basis for making the required good-faith certification, based on their individual circumstances in light of the language of the certification and SBA guidance.

However, SBA has previously stated that all PPP loans in excess of $2 million, and other PPP loans as appropriate, will be subject to review by SBA for compliance with program requirements set forth in the PPP Interim Final Rules and in the Borrower Application Form. SBA added that borrowers who repay their loans after receiving notification from the SBA will not be subject to administrative enforcement or referrals to other agencies. Additionally, SBA's determination regarding the necessity of the loan request will not affect the SBA loan guarantee.

If SBA determines in the course of its review that a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request, SBA will seek repayment of the outstanding PPP loan balance and will inform the lender that the borrower is not eligible for loan forgiveness.