How to help your clients apply for PPP loan forgiveness

Editor’s note: Regulations and guidance from the SBA and the U.S. Department of Treasury on the PPP are evolving rapidly. Please refer to the latest guidance from SBA and Treasury to confirm current program rules and how they apply to your particular situation.

How to help your clients apply for PPP loan forgiveness

In 2020, the U.S. Congress passed a series of acts in an attempt to ease the economic burden placed on businesses caused by restrictions due to COVID-19. One of these, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, created the Paycheck Protection Program (PPP). This program allowed for eligible businesses throughout the country to apply and receive loans from essential qualifier lenders to continue to pay employees, even if those businesses reduced hours or were closed. Currently, we are entering the period where many of these businesses have spent their PPP loan funds and are needing to apply for forgiveness of these loans.

A number of factors will ultimately determine the amount of information a PPP loan recipient will need to provide to their lender (or the lender servicing their loan) to complete the forgiveness application. From my experience, here are my best practices regarding the PPP loan forgiveness process.

For Form 3508, Paycheck Protection Program Loan Forgiveness Application, and 3508EZ, Paycheck Protection Program EZ Loan Forgiveness Application, documentation is the key. Among the number of applications I have completed for clients and others, pulling together the necessary documentation has taken the longest time. Though the rules per the SBA (which is administering this program) and the actual application seem straightforward, the lenders are responsible for approving or denying loan forgiveness applications. Even the 3508EZ requires the same documentation as the standard 3508 forgiveness application.

What your clients will need

Gather the necessary documents in PDF format. In addition, this is neither an exhaustive list nor will all SBA-approved lenders require all items listed, as each lender appears to have their own due diligence requirements. See more details here.

For the EZ filer, this documentation is used simply to substantiate that the loan was spent on the stated expenses. For the standard 3508, this documentation will also be used to assist in the completion of Schedule A and the associated worksheets, and is typically entered into the lender’s application portals. 

Schedule A is really what distinguishes between the 3508 and the EZ form. Each of the SBA-approved lenders do attempt to assist in the completion of the calculations from these worksheets, either through online or downloadable excel worksheets. However, much of the jargon used in the application portal makes it very difficult for non-accounting/financial persons to use these portals and forms. I have been contacted by numerous individuals on how to complete this schedule.

In the event that the lender doesn’t provide a good calculator, a spreadsheet will be required if there are more than a handful of employees.

For Safe Harbor check boxes, most, if not all, businesses should be checking the box for Safe Harbor 1. Essentially, this is saying COVID-19 affected this business and that this was the reason we needed this PPP Loan. On the “no reduction” checkbox, my interpretation is that this can be taken in two ways: either the PPP worked as designed or the business did not need this loan and might need some additional scrutiny. Safe Harbor 2 is for employers with part-time or seasonal staff, but should not be overlooked if the business was forced to reduce hours and cut the employee’s hours as well.

Points of advice

Many professionals might be of the mindset to provide only what is asked or even less. I have attempted this, and each time the lender has come back with requests for more documentation. It is similar to the level of how mortgage lenders require so much documentation. Therefore, on the last couple of applications, we simply provided the above outlined documentation, and as of the writing of this, none of the lenders have come back requesting more. 

Remember the math. These loans were originally designed to cover 2.5 months of eligible payroll costs, but recipients were ultimately given six months to spend the funds on eligible payroll and non-payroll costs. Unless the business really attempted to stretch the funds or didn’t use the funds as required, there should be enough expenses on Line 1 under cash compensation to cover the loan proceeds. If that is not the case, double check the math, and then ensure you are adding expenses to Lines 6 to 9 of Schedule A to cover the shortfall.

PPP loan forgiveness is a process; depending on the number of employees, you can expect to spend a minimum of an hour going through the calculations, and working within the lender’s application portal. You should review the calculations to ensure everything is correct. These businesses that are struggling to stay operational are asking for taxpayer funds to maintain their business and pay their employees. If the PPP loan forgiveness application gets rejected, remember that you can appeal.

Disclosures:

Note: PPP borrowers may engage the services of an accountant to track the use of their PPP funds. However, only the borrower or an authorized representative who is legally authorized to make certifications on the borrower’s behalf may submit an application for loan forgiveness. Accountants should be aware of this limitation and ensure that an authorized representative of the borrower understands his or her obligation to complete, review, and certify to the contents of any loan forgiveness application. Regulations and guidance from the SBA and the U.S. Department of the Treasury on the PPP are evolving rapidly, and the above information may be outdated. Please refer to the latest guidance from SBA and Treasury to confirm current program rules and how they apply to your particular situation.

The funding described is made available to businesses located in the United States of America and is not available in other locations. 

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PPP loan and forgiveness calculations and eligibility may vary. Refer to the SBA.gov for information about your particular situation.

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