SCORE

How To Complete SBA Form 3508S for PPP Loans Under $50,000

By Bill Cunningham

Disclaimer:

The information provided in this blog does not constitute legal, tax or accounting advice, but is designed to provide a current understanding of the Paycheck Protection Program forgiveness application. You should rely on the guidance provided by the SBA and US Treasury Department, advice from your CPA or attorney, and instructions from your bank.  This blog has not been approved by SCORE or the SBA.

The Small Business Administration (SBA) has released a simplified forgiveness application for Paycheck Protection Program (PPP) small business loans of $50,000 or less. This new form is great news for small businesses because it streamlines the PPP forgiveness process. However, PPP loan recipients still need to understand how to complete the form and document how they used their proceeds in case of a future SBA audit.  Therefore we are offering this how-to blog on completing the new SBA Form 3508S.  For actually filling out the form, please also access our on-demand replay found online by clicking here.

The New 3508S Form Overview

SBA Form 3508S simplifies the calculation of the forgiveness amount by removing some requirements such as calculating full-time equivalent (FTE) adjustments, or salary and hourly rate adjustments.

This new form also simplifies and speeds-up your lender’s review process of your forgiveness loan application. Your lender is only required to confirm receipt of your certifications and documentation, and confirm the calculations on your form. While Form 3508S is easier for your lender to process, you cannot rely on the lender to flag any issues with your forgiveness calculation or documentation prior to submitting the application. 

The form requires you to 1) certify seven declarations, 2) calculate your forgiveness amount and 3) provide documentation supporting your forgiveness amount.

At least sixty percent of your forgiveness amount must be covered payroll costs, but in fact, you can submit a forgiveness amount that includes only payroll costs.

We recommend that you should apply now or as soon as your lender will accept the new SBA form. If you do not submit your forgiveness application now, your deadline is the maturity date of your PPP loan; however, if you don’t submit your forgiveness application within ten months following your forgiveness covered period, your lender will require you to make monthly payments, including interest and principal, on your PPP loan balance.

When the SBA approves your application and sends the forgiveness payment and related accrued interest to your lender, the forgiveness amount will be reduced by the amount of your EIDL advance, if you received one.  It is important to emphasize that the SBA will reduce your forgiveness by the amount of your advance; not your EIDL loan.

A Step by Step Example

In the replay, we use a sample company to walk you through the steps you should take to calculate your forgiveness amount.  If you want to understand these steps in detail you should watch the seminar replay by clicking here. There we will walk you through the following steps:

Documenting your Forgiveness Amount - You will be required to include certain documents with your forgiveness application and your lender is required to confirm receipt of your documentation.

Calculating your Forgiveness Amount - We offer an Excel worksheet to help calculate your forgiveness amount. Click here for a link to this Excel worksheet for. You should still review your application, this worksheet and your documentation with your CPA or attorney before filing.

The first section of the worksheet asks for basic information such as business name, legal structure, PPP loan amount, PPP loan distribution date, payroll processing frequency, and covered period selection.

Next you will run a payroll journal report that is available from most payroll providers who have reports specifically for COVID or PPP loan forgiveness.

We also enter the cash compensation for the owner. This income will not be based on the payroll register during the covered period. Instead, it will be based on your 2019 income or, if your business is a startup, it will be based on your income for January and February 2020.  If your business is a sole proprietorship or an LLC, you will use your 2019 Schedule C net income. If your business is an S-Corp or C-Corp, you will use your W-2 compensation. 

Next we will input your other payroll costs and non-payroll costs. The other payroll costs may include your employer payroll taxes, health insurance premiums, or employer retirement contributions to employees that are paid or incurred during the covered period with certain limitations based on your legal entity.

The forgiveness amount includes covered non-payroll costs (mortgage interest, rent and lease payments and utilities payments) that are paid or incurred during the covered period. Covered costs that are incurred during the covered period, but paid in the next payment cycle, can also be used in your forgiveness calculation as well.

The Loan Forgiveness Process - Once you have calculated the forgiveness amount, the next step is to complete the actual PPP Loan Forgiveness Application (SBA Form 3508S). Again we will walk you through this process in the video.

After you have transferred your forgiveness amount from the Excel workbook and entered in other information about your PPP loan and EIDL advance, you will be certifying your application by initialing seven statements. These certifications are important and should be read carefully.  They include items such as that PPP funds were only spent on eligible costs and authorized purposes, that you double-checked your math, and you have provided documentation for all of your payroll costs and your non payroll costs.

You will need to send your application and supporting documentation to your lender. As mentioned previously, the lender will confirm the following: the receipt of your certifications, receipt of your documentation, and confirms that your forgiveness amount doesn’t exceed your loan amount. The lender will then submit your application to the SBA loan portal for SBA approval.  

The SBA will review, approve or deny your forgiveness application. If the SBA approves your application, the SBA will transfer the appropriate funds to the lender to paydown your loan.  As we mentioned above, the SBA will reduce the amount of your forgiveness amount by the amount of your EIDL advance. Your lender will inform you when the SBA has approved your application. You will be responsible to pay your PPP loan balance, if any, in monthly installment until your loan maturity date.

The lender has two months to send your application to the SBA. The SBA then has another three months to review, approve or deny your application. In reality, when your bank is ready to accept the Form 3508S, this process should take significantly less time than the five allowable months.

It is important to remember that even if the SBA approves your forgiveness amount, they retain the right to audit your loan and forgiveness amount for up to six years.

Conclusion

Even after reading this blog and watching the video, some Rhode Island or Southeastern Massachusetts Rhode Island or Southeastern Massachusetts small business owners may need assistance with this simplified form. If you feel that way, SCORE volunteers are available to assist you. Feel free to reach out to your local SCORE chapter at www.score.org or call 401-226-0077.

For more than 50 years, SCORE has helped more than 11 million aspiring entrepreneurs and small business owners through mentoring and business workshops. More than 11,000 volunteer business mentors in more than 300 chapters serve their communities.

Links

Ask for a SCORE RI mentor: www.score.org/find-mentor

Excel Forgiveness Calculator Worksheet for Form 3508S 

SBA Form 3508S PPP Loan Forgiveness Application

SBA Form 3508S PPP Loan Forgiveness Application Instructions

Frequently Asked Questions on PPP Loan Forgiveness

Interim Final Rule on Additional Revisions to Loan Forgiveness and Loan Review Procedures Interim Final Rules (10/8/2020)

IRS ruling on the deductible of covered forgiveness expenses

Like what you are reading?
Subscribe to Rhode Island SCORE's twice monthly blog posts click here to Subscribe >

Disclaimer

The information provided in this blog does not constitute legal, tax or accounting advice, but is designed to provide a current understanding of the Paycheck Protection Program forgiveness application. You should rely on the guidance provided by the SBA and US Treasury Department, advice from your CPA or attorney, and instructions from your bank.  This blog has not been approved by SCORE or the SBA.

About the Author(s)

 Bill  Cunningham

Bill Cunningham is a SCORE Rhode Island mentor and workshop instructor, focusing on business models, business planning, and QuickBooks Online. He is a CPA with more than 30 years of working in the television industry.

How To Complete SBA Form 3508S for PPP Loans Under $50,000