The SBA published an additional interim final rule on PPP loan forgiveness on October 8, 2020.[1]  The October 8, 2020 IFR which provides:

• Additional guidance concerning the forgiveness and loan review processes for PPP loans of $50,000 or less and

• For PPP loans of all sizes, lender responsibilities with respect to the review of borrower documentation of eligible costs for forgiveness in excess of a borrower’s PPP loan amount.[2]

Loans of $50,000 or Less – Administrative Relief

After much speculation about a potential for a close to automatic PPP loan forgiveness provision for certain loans to be added legislatively that has failed to yet materialize, the SBA has acted to give some administrative relief for loans of $50,000 or less.

The SBA is at the same time releasing a new simplified form (Form 3508S[3]) to be used by borrowers with loans of $50,000 or less, except for borrowers that together with affiliates received loans totaling $2 million or greater.[4]

The IFR provides:

A borrower of a PPP loan of $50,000 or less, other than any borrower that together with its affiliates received loans totaling $2 million or greater, may use SBA Form 3508S (or lender’s equivalent form) to apply for loan forgiveness.[5]

A borrower who chooses to use the Form 3508S is exempt from any:

• Reductions in the borrower’s loan forgiveness amount based on reductions in full-time equivalent (FTE) employees (section 1106(d)(2) of the CARES Act) or

• Reductions in employee salary or wages (section 1106(d)(3) of the CARES Act).[6]

The IFR explains that the SBA is treating this as a de minimis exception, justifying the provision as follows:

There are approximately 3.57 million outstanding PPP loans of $50,000 or less, totaling approximately $62 billion of the $525 billion in PPP loans. Approximately 1.71 million PPP loans of $50,000 or less were made to businesses that reported having zero employees (presumably not counting the owner as an employee) or one employee. To the extent that these businesses have no employees other than the owner (i.e., all businesses that reported having zero employees and, in SBA’s judgment, the majority of businesses that reported having one employee), they are not affected by these exemptions. As a result, based on available data, we estimate that the outstanding PPP loans of the relevant set of potentially affected borrowers (businesses with at least one employee other than the owner) total approximately $49 billion, or 9 percent of the overall PPP loan amount. Within this population of potentially affected loans, SBA believes that most borrowers would not be affected by the loan forgiveness reduction requirements because (1) the borrowers did not reduce FTE employees or reduce employee salaries or wages, or (2) the borrowers would qualify for one of the existing exemptions from loan forgiveness amount reductions. Excluding such borrowers, the aggregate dollar amount of PPP funds affected by these exemptions relative to the aggregate dollar amount of all PPP funds is de minimis.[7]

To account for the Form 3508S, the SBA added the following provision applicable to a lender’s review of such an application for forgiveness:

When a borrower submits SBA Form 3508S or lender’s equivalent form, the lender shall:

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

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

Providing an accurate calculation of the loan forgiveness amount is the responsibility of the borrower, and the borrower attests to the accuracy of its reported information and calculations on the Loan Forgiveness Application. The borrower shall not receive forgiveness without submitting all required documentation to the lender.

As the First Interim Final Rule indicates, lenders may rely on borrower representations. As stated in paragraph III.3.c of the First Interim Final Rule, the lender does not need to independently verify the borrower’s reported information if the borrower submits documentation supporting its request for loan forgiveness and attests that it accurately verified the payments for eligible costs.[8]

Lenders Actions When a Borrower Submits Expenses in Excess of Those Necessary for Loan Forgiveness

The SBA has also provided relief from the need for lenders to review every submitted expense expense when a borrower submits expenses in excess of those necessary to qualify for full forgiveness.

The IFR provides:

d. What should a lender do if a borrower submits documentation of eligible costs that exceed a borrower’s PPP Loan Amount?

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.[9]

[1] RIN 3245-AH59, Business Loan Program Temporary Changes; Paycheck Protection Program – Additional Revisions to Loan Forgiveness and Loan Review Procedures Interim Final Rules, Small Business Administration, October 8, 2020, https://home.treasury.gov/system/files/136/PPP--IFR--Additional-Revisions-Loan-Forgiveness-Loan-Review-Procedures-Interim-Final-Rules.pdf (retrieved October 8, 2020)

[2] RIN 3245-AH59, pp. 1-2

[3] Form 3508S, https://home.treasury.gov/system/files/136/PPP-Loan-Forgiveness-Application-Form-3508S.pdf and Instructions to Form 3508S https://home.treasury.gov/system/files/136/PPP-Loan-Forgiveness-Application-Form-3508S-Instructions.pdf (retrieved October 8, 2020)

[4] RIN 3245-AH59, p. 5

[5] RIN 3245-AH59, Section III.1.b, p. 6

[6] RIN 3245-AH59, Section III.1.b, p. 6

[7] RIN 3245-AH59, Section III.1.b, pp. 7-8

[8] RIN 3245-AH59, Section III.2.b, p. 9

[9] RIN 3245-AH59, Section III.2.c, p. 10