October 19, 2020

The Small Business Administration (SBA) has published an interim final rule providing additional guidance concerning: (1) the forgiveness and loan review processes for Paycheck Protection Program (PPP) loans of $50,000 or less; and (2) 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.  In connection with this rule, the SBA is also announcing an alternative Loan Forgiveness Application (SBA Form 3508S) for use by PPP borrowers applying for loan forgiveness on PPP loans with a total loan amount of $50,000 or less, except for those borrowers that together with their affiliates received loans totaling $2 million or greater.

As you are aware, the SBA published its initial interim rule on loan forgiveness (First Loan Forgiveness Rule) on June 1, 2020.  The SBA simultaneously published a separate interim rule on June 1 concerning SBA loan review procedures and related borrower and lender responsibilities (First Loan Review Rule).  Subsequently, on June 26, 2020, the SBA and Treasury Department jointly published an interim rule – “Revisions to Loan Forgiveness and Loan Review Procedures Interim Final Rules” – revising the First Loan Forgiveness Rule and the First Loan Review Rule to incorporate certain Flexibility Act amendments.

Per this new interim final rule, the SBA is clarifying that 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.  A borrower that uses SBA Form 3508S (or lender’s equivalent form) is exempt from any reductions in the borrower’s loan forgiveness amount based on reductions in full-time equivalent employees or reductions in employee salary or wages that would otherwise apply under the CARES Act.  In addition, with respect to the loan forgiveness process for lenders, the SBA is updating certain elements of its June 1 First Loan Review Rule, as revised by the June 26 Revisions to Loan Forgiveness and Loan Review Procedures Interim Final Rules, to reflect the creation of and include references to SBA Form 3508S.  As noted above, SBA Form 3508S is for use by PPP borrowers applying for loan forgiveness on PPP loans with a total loan amount of $50,000 or less, except for those borrowers that together with their affiliates received loans totaling $2 million or greater.

Finally, the SBA notes that as part of the PPP loan forgiveness process for loans of all sizes, a borrower may submit to a lender documentation of eligible payroll and nonpayroll costs that exceed the amount of the borrower’s PPP loan.  Generally, lenders are required to review documentation verifying payroll costs, the existence of obligations and services (as applicable) prior to February 15, 2020, and eligible business mortgage interest payments, business rent or lease payments, and business utility payments.  This new interim final rule clarifies that 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.

This interim final rule is effective as of October 14, 2020.  Comments are due by November 18, 2020 and can be submitted via the federal eRulemaking portal using Docket ID SBA-2020-0052.

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