Back in March, when the pandemic began taking a toll on cash flow and wages, the federal government actually came through with the CARES Act. More than half a billion dollars available to small businesses through the PPP loan program.
Over five million businesses took advantage of the program to shore up their capital needs and ensure that employees continued to get paid while businesses slowed or shut down completely. The key to the loan program was that if the funds were spent mostly on wages for employees, the loan would be entirely forgiving and essentially turned into a government grant.
Here we are more than six months later, and it is coming time now to reckon with repayment or forgiveness of those loans that were such an important lifeline to so many businesses at the time.
Typical of these large governmental programs, there has been a disconnect about informing borrowers how to obtain loan forgiveness, or if not forgiven how and when to start repaying the loans.
The SBA and the treasury are trying, though.
Last week the SBA released a simpler loan forgiveness application for loans of $50,000 or less. The application is just two pages long and allows for faster processing of the forgiveness claim for borrowers. It can be found on the Small Business Administration website. It is Form 3508S.
The SBA also released Form 3508EZ in June which allows a certain subset of borrowers to use the EZ form to seek forgiveness. Borrowers who are self-employed and who had no employees at the time of the loan application are eligible to use the EZ form. Also, most employers who did not reduce wages of any employee by more than 25 percent during the covered period of the loan, and who did not reduce the number of employees during the covered period will be able to take advantage of the EZ form.
When it comes time to apply for forgiveness (it may already be time for some of you), you will need to have lots of information available. You will need statements of wages, commissions, and other compensation paid to your employees. Any payments made for paid time off must be calculated. Any payments that you as an employer made on behalf of employees for benefits like insurance premiums. Any retirement benefit costs that were paid by you, and any state or local taxes assessed based on employee compensation.
There is no forgiveness for payment of wages in excess of an annual salary of $100,000 for each individual employee.
You should also remember that payments to independent contractors does not count as forgivable wages on your employer payroll.
You will need to know your “covered period,” which may be the 168 days following the Loan Disbursement Date. You can find this date on your loan documents. Otherwise, it is the 56 days following loan disbursement if your loan was received before June 5, 2020.
You may have some employees who were furloughed initially who subsequently refused to return back to work after a bona fide offer of a return was made to them. In those instances, the government will give you an exception so that you will not be penalized for reducing your work force because an employee refused to come to work. You should be able to make this claim on the loan forgiveness paperwork.
Like many government programs, the paperwork can be daunting. If in doubt, you should consult with a professional who can help you avoid the pitfalls.