SBA Paycheck Protection Program – Loan Forgiveness FAQs

Updated February 15th, 2021

Selfreliance FCU is now accepting applications for the SBA PPP Loan Forgiveness.

Borrowers with a PPP Loan of $150,000 or less may fill out our online loan application. The full application and instructions from the SBA for Form 3508S.

Borrowers with a PPP Loan greater than $150,000 will be required to fill out either Form 3508EZ or Form 3508 depending on certain criteria. Please contact our team at sbaloans@selfreliance.com or by calling 773-328-7500 ext. 824 for assistance.

If certain Government Officials have a controlling interest in the Borrower an additional Form 3508D may be required.

1. What application do borrowers need to fill out for loan forgiveness?

The SBA has created three different applications - the Loan Forgiveness Application (SBA Form 3508), a simplified Loan Forgiveness Application Form 3508EZ, and most recently Loan Forgiveness Application Form 3508S.

Borrowers may use the 3508S form only if the total PPP loan amount received was $150,000 or less. This is the simplest form and requires fewer calculations and less documentation. If the borrower is not eligible to use form 3508S then they must fill out either form 3508EZ or the full 3508.

Borrowers may use the 3508EZ form only if they meet AT LEAST ONE of the following criteria:

• The Borrower did not reduce annual salary or hourly wages of any employee by more than 25 percent during the Covered Period compared to the most recent full quarter before the Covered Period. (For purposes of this statement, “employees” means only those employees that did not receive, during any single period during 2019, wages or salary at an annualized rate of pay in an amount more than $100,000);
  AND
  The Borrower did not reduce the number of employees or the average paid hours of employees between January 1, 2020 and the end of the Covered Period. (Ignore reductions that arose from an inability to rehire individuals who were employees on February 15, 2020 if the Borrower was unable to hire similarly qualified employees. Also ignore reductions in an employee’s hours that the Borrower offered to restore and the employee refused).

• The Borrower did not reduce annual salary or hourly wages of any employee by more than 25 percent during the Covered Period compared to the most recent full quarter before the Covered Period. (For purposes of this statement, “employees” means only those employees that did not receive, during any single period during 2019, wages or salary at an annualized rate of pay in an amount more than $100,000);
  AND
  The Borrower was unable to operate during 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 (or, for a PPP loan made after December 27, 2020, requirements established or guidance issued between March 1,2020 and the last day of the Covered Period) 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.

If the borrower does not meet any of the criteria, then they must complete the full Loan Forgiveness Application (SBA Form 3508), including all schedules and worksheets.

See question 13 for links on where to download the application. Borrowers may submit their loan forgiveness applications and supporting documents to the same online portal that they used when applying for the PPP Loan

2. What additional documents do borrowers need to provide for loan forgiveness?

Borrowers submitting Forgiveness Form 3508S do not need to provide any additional supporting documentation. However, borrowers must maintain all records related to the PPP loan, including documents that verify all payroll and nonpayroll figures used in the forgiveness calculation. The SBA may request this information at any time if they do a review or full audit of the loan.

Borrowers submitting Forgiveness Forms 3508 or 3508EZ must submit the following supporting documentation:

• Payroll: Documentation verifying the eligible cash compensation and non-cash benefit payments from the Covered Period or the Alternative Payroll Covered Period consisting of each of the following:
  • Bank account statements or third-party payroll service provider reports
  • Tax forms (or equivalent third-party payroll service provider reports) for the periods that overlap with the Covered Period or the Alternative Payroll Covered Period (Documents submitted may cover periods longer than the specific time period):
    • Payroll tax filings reported, or that will be reported, to the IRS (typically, Form 941); and
    • State quarterly business and individual employee wage reporting and unemployment insurance tax filings reported, or that will be reported, to the relevant state.
  • Payment receipts, cancelled checks, or account statements documenting the amount of any employer contributions to employee health insurance and retirement plans that the Borrower included in the forgiveness amount
  • If you are filling out the simplified form 3508EZ and you ONLY qualify based on the second criteria then you must submit documentation proving the average number of full-time equivalent employees on payroll on January 1, 2020 and at the end of the Covered Period
• Nonpayroll: Documentations showing eligible payments for each of the following. Additionally, for the first 3 categories you will also need documentation verifying existence of the obligations/services prior to February 15, 2020:
  • Business mortgage interest payments
  • Business rent or lease payments
  • Business utility payments
  • Covered operations expenditures
  • Covered property damage costs
  • Covered supplier costs
  • Covered worker protection expenditures

Borrowers submitting Forgiveness Form 3508 will also need the following:

• PPP Loan Forgiveness Calculation Form
• PPP Schedule A
• Full Time Equivalent (FTE): Documentation showing (at the election of the Borrower):
  • The average number of FTE employees on payroll per month employed by the Borrower between February 15, 2019 and June 30, 2019
  • The average number of FTE employees on payroll per month employed by the Borrower between January 1, 2020 and February 29, 2020
  • For seasonal employers, the average number of FTE employees on payroll per month employed by the Borrower between February 15, 2019 and June 30, 2019; between January 1, 2020 and February 29, 2020; or any consecutive twelve-week period between February 15, 2019 and February 15, 2020.

Borrowers should retain ALL documentation related to the PPP loan and forgiveness (application, supporting documents, calculations, worksheets, certification proof, etc.) for six (6) years after the loan is forgiven or repaid in full.

3. When must payroll costs be incurred or paid to be eligible for forgiveness?

Payroll costs must be either incurred or paid beginning on the date the loan was originally disbursed and ending on a date selected by the borrower that is at least 8 weeks but no more than 24 weeks after the disbursement date.

Payroll costs are considered paid on the day paychecks are distributed or the borrower originates an ACH credit transaction.

Payroll costs incurred during the borrower's last pay period of the covered period are eligible for forgiveness if paid on or before the next payroll date. Payroll costs are generally incurred on the day the employee's pay is earned.

The following payroll costs are eligible for the forgiveness calculation:

• Gross salary, wages, tips, or any other cash compensation paid to employees (capped at $100,000 per employee)
• Employer contributions for employee health insurance (does not include contributions made on behalf of owner-employees, self-employed individuals, or general partners)
• Employer contributions to employee retirement plans (does not include contributions by employees, and does not include contributions made on behalf of self-employed individuals or general partners)
• Employer state and local taxes paid by the borrower (does not include any taxes withheld from employee earnings)

4. When can borrowers apply for loan forgiveness?

Borrowers may apply for the forgiveness at any time following their covered period and once all funds have been used. However, we must delay our decision regarding the forgiveness amount until we receive all required supporting documents.  

5. Do borrowers need to make any payments on the loan? If yes, when?

Once we, the lender, receive the application and supporting documentation, we will review everything and make a decision regarding forgiveness. Within 60 days we must notify the SBA and request payment from them. The SBA then has 90 days in which to review and/or remit payment.

• If the SBA forgives the full amount - no payments will be required from the borrower.
• If, for whatever reason, the full amount is not forgiven - the borrower will be notified by us on how much is still owed, standard payment amount, and when the first payment will be.
• If the borrower does not submit a loan forgiveness application to us within the 10 months following the last day of the maximum covered period of 24 weeks, or if SBA determines that the loan is not eligible for forgiveness (in whole or in part) – the borrower will be notified by us on how much is owed, standard payment amount, and when the first payment will be.

If we deny a borrower’s application in full, we will notify the borrower in writing. Within 30 days of the notice, the borrower may notify us that it is requesting that SBA review the Lender’s decision. Within 5 days of receipt of the borrower’s request for review, we must notify SBA of the request. SBA will notify us if SBA declines a request for review. If SBA accepts a borrower’s request for review, SBA will notify the borrower and the Lender of the results of the review.

Please note that if the full amount is not forgiven, the borrower is responsible for the remaining principal amount plus interest, which begins accruing when the loan is disbursed.

6. The note that I signed says that my first payment is due in six (6) months, is this still the case?

No, the Paycheck Protection Program Flexibility Act of 2020 that was signed into law June 5, 2020 extended the payment deferral period retroactively for all PPP loans. Borrowers now have 24 weeks from disbursement to use the funds and an additional 10 months after that to submit a forgiveness application, no payment is needed within this timeframe. We have updated the first due date for all PPP loans on our system to reflect these changes and you should have received a letter with the new first payment date.

Please note that if the loan is not fully forgiven your first payment date will be modified again. We will notify you of the amount forgiven by the SBA, the outstanding principal and interest amount, scheduled principal and interest payment amount, and first payment date.

7. My loan was not fully forgiven; how long do I have to pay it back?

If you received the loan on or after June 5, 2020 the maturity date is 5 years from the date of disbursement.

If you received the loan before June 5, 2020 the maturity date is 2 years from the date of disbursement; however, borrowers may contact the lender to request an extension of the maturity date to 5 years.

If the full amount is not forgiven, we will notify you of the amount forgiven by the SBA, the outstanding principal and interest amount, scheduled principal and interest payment amount, and first payment date.

8. Are there caps on the amount of payroll compensation for owner-employees, self-employed individuals, or general partners that can be included in the loan forgiveness amount?

Yes, the amount of compensation paid to owners is capped at the lessor of 2.5 months of their 2019 or 2020 compensation (depending on what year was used on the initial application) or $20,833 (2.5 month equivalent of $100,000 annual salary). Note that if the covered period chosen is less than 24 weeks then the cap may decrease proportionately.

For the purposes of this application, an owner is anyone that is:

• An individual that owns 20% or more of the equity of the borrower and received compensation as reported on form W-2 from the borrower. The cap is based on 2019 W-2 received, box 1.
• An independent contractor, sole-proprietor, or any other individual that reports their business income on Schedule C when filing their taxes. The cap is based on 2019 Schedule C, line 31.
• A self-employed farmer that reports their farming income on Schedule F when filing their taxes. The cap is based on 2019 Schedule F, line 34.
• A general partner that reports Self-Employment Earnings in box 14 on Schedule K-1 (Form 1065) from a Partnership. The cap for the partnership is based on 2019 Form 1065, Schedule K, line 14a.
• LLC owners should follow the instructions that apply to their 2019 tax filing situation, for example, whether they file as a sole proprietor, a partnership, or a corporation.

9. When must nonpayroll costs be incurred or paid to be eligible for forgiveness?

A nonpayroll cost is eligible for forgiveness if it was either:

• Paid during the covered period, or
• Incurred during the covered period and paid on or before the next regular billing date, even if the billing date is after the covered period

The following nonpayroll costs are eligible for the forgiveness calculation:

• Business mortgage interest payments (must have been in effect before February 15, 2020)
• Business rent or lease payments (must have been in effect before February 15, 2020)
• Business utility payments (must have been in effect before February 15, 2020)
• Covered operations expenditures
• Covered property damage costs
• Covered supplier costs
• Covered worker protection expenditures

Eligible nonpayroll costs cannot exceed 40% of the total forgiven amount.

10. What effect does a reduction in a borrower's number of full-time equivalent (FTE) employees or in employee salary and wages have on the loan forgiveness amount?

A reduction in FTE employees during the covered period reduces the loan forgiveness amount by the same percentage as the percent reduction in FTE employees.

The following exceptions apply:

• Borrower has offered to restore employee hours at the same salary or wages, even if the employees have not accepted,
• Borrower fired an employee for cause or have an employee that voluntarily resigns or voluntarily requests a schedule reduction,
• Borrower eliminated reductions by December 31, 2020 or, for a PPP loan made after December 27, 2020, the last day of the loan’s covered period
• Borrower’s PPP loan is $50,000 or less
• Borrower is able to document in good faith an inability to return to the same level of business activity as the borrower was operating at before February 15, 2020, due to compliance with requirements established or guidance issued between March 1, 2020 and December 31, 2020 (or, for a PPP loan made on or after December 27, 2020, not later than the last day of the loan’s covered period) by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention (CDC), or the Occupational Safety and Health Administration related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19 (COVID Requirements or Guidance)

Borrowers should maintain records to show compliance with these exceptions including, but not limited to, the written offer to rehire an individual, a written record of the offer’s rejection, and a written record of efforts to hire a similarly qualified individual.

Full-time equivalent employee means an employee who works 40 hours or more, on average, each week.

11. What other information will borrowers need to know to complete the application?

All Borrowers must provide their NAICS Code on their Forgiveness Application. This code can typically be found on your tax return. Additional information can be found at https://www.census.gov/naics/.

If you are filling out the full Loan Forgiveness Application (SBA Form 3508), you will also need the following information for each non-owner employee:

• Name
• Last 4 digits of their SSN
• Total compensation paid or incurred during the Covered Period or the Alternative Payroll Covered Period
• Average number of hours worked during the Covered Period or the Alternative Payroll Covered Period
• Average annual salary or hourly wage (some or all of these may be required):
  • During the Covered Period or the Alternative Payroll Covered Period
  • Between January 1, 2020 and March 31, 2020
  • On February 15, 2020
  • Between February 15, 2020 and April 26, 2020
  • On the earlier of December 31, 2020 or the date of loan forgiveness application submission.
• Average hours worked (some or all of these may be required):
  • During the Covered Period or the Alternative Payroll Covered Period
  • Between January 1, 2020 and March 31, 2020
  • Period including February 15, 2020
  • Between February 15, 2020 and April 26, 2020
  • Period including the earlier of December 31, 2020 or the date of loan forgiveness application submission.

12. Do I need to fill out Form 3508D?

If a Covered Individual directly or indirectly held a Controlling Interest in the Borrower at the time the Borrower’s loan application was submitted to the PPP lender then the Borrower must submit Form 3508D along with their Forgiveness Application.

A Covered Individual means (a) any one of the following Government Officials: the President, the Vice President, the head of an Executive department as defined in 5 U.S.C. § 101, or a member of Congress and (b) the Spouse, as determined under applicable common law, of a Government Official described in clause (a), determined as of the time the Borrower’s loan application was submitted to the PPP lender.

A Controlling Interest means owning, controlling, or holding not less than 20 percent, by vote or value, of the outstanding amount of any class of equity interest in a borrower. Additionally, for purposes of this certification, the securities owned, controlled or held by an individual and their spouse shall be aggregated. The term “equity interest” means (1) a share in a borrower, without regard to whether the share is transferable or classified as stock or anything similar, (2) a capital or profit interest in a limited liability company or partnership, or (3) a warrant or right, other than a right to convert, to purchase, sell, or subscribe to a share of interest described in (1) or (2), respectively.

13. Where can I get more information?

You can view and download the full applications and their instructions by following these links:

• Form 3508S
• Form 3508EZ
• Form 3508
• Form 3508D

Additional resources available through the SBA’s website and through the Treasury’s website.

While we do not have an online version of the 3508EZ and 3508 loan forgiveness applications, we did find a helpful tool, https://www.pppforgivenesstool.com/ which is a collaboration between the American Institute of CPAs, CPA.com, and small business lender Biz2Credit. This tool will walk you through the application and ask you all the relevant questions. In the end you can generate a full application with the figures you provided and save it.

Please note that these FAQs may change as more guidance is released by the Small Business Administration or the Treasury Department.

If you have any questions, please contact us at 773-328-7500 ext. 824 (please leave a voicemail if not answered) or email sbaloans@selfreliance.com.