SBA and Treasury Provide Relief to Small Borrowers
On October 8, 2020, the US Small Business Administration (SBA) issued another Interim Final Rule under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). This Rule provides immediate relief in the form of a simpler loan forgiveness application that is available to qualifying borrowers of Paycheck Protection Program (PPP) loans of $50,000 or less. The new Form is available on the SBA website.
Relying on the rulemaking power of SBA and Treasury, rather than waiting for another amendment to the CARES Act, SBA and Treasury adopted a simpler form—SBA Form 3508S. This new SBA Form 3508S may only be used if the total PPP loan amount received from a lender was $50,000 or less. SBA Form 3508S requires fewer calculations and less documentation for eligible borrowers than the two current forms, SBA Form 3508 and SBA Form 3508EZ, primarily because borrowers of $50,000 or less have been exempted by rule from the provisions of the CARES Act that impose a reduction penalty if the borrower of a PPP loan has reduced its full-time equivalent (FTE) employees, or if the borrower of a PPP loan has reduced the employee salary and wages of certain employees, during the covered period of its PPP loan.
The new Rule authorizing Form 3508S also revises numerous other rules promulgated by SBA and Treasury. It includes additional guidance concerning the forgiveness and loan review processes that will apply to PPP loans of $50,000 or less and other guidance applicable to forgiveness applications generally.
This new rule provides welcome news to many struggling and confused small business owners, who have been waiting for relief from a distracted Congress. SBA’s Chief of Staff and Associate Administrator for Capital Access, testifying before a House Subcommittee on September 24, 2020, stated that SBA began processing forgiveness applications on October 2, 2020. The new Rule notes that approximately 3.57 million PPP loans of $50,000 or less are outstanding, totaling $62 billion of the $525 billion in PPP loans that have been made. The Rule seems designed to encourage these borrowers to complete the forgiveness application and certifications necessary on the new 1-page form and move these loans through the forgiveness process.
While the exemption amount may seem inadequate to the many borrowers who were delaying applying for forgiveness (and for the lenders who were delaying processing forgiveness applications) in the hope that loans of less than $150,000 would receive “automatic forgiveness,” no such forgiveness is contemplated in the CARES Act. Rather than waiting for Congress to act, exercising their joint rulemaking authority, SBA and Treasury have provided a basis for a less onerous application for small borrowers, many of whom have only a single employee. They did this by authorizing a de minimis exemption from the full-time equivalent (FTE) employee reduction penalty for PPP loans of $50,000 or less and a de minimis exemption from the employee salary and wages reduction penalty for PPP loans of $50,000 or less.
Perhaps the new rules and form will give borrowers the confidence to proceed with their forgiveness applications.