What’s New with Paycheck Protection Program Loan Forgiveness? by Joseph C. Leuchter, CPA

Posted on November 12, 2020 by Joseph Leuchter

After granting small businesses more than 5 million Paycheck Protection Program (PPP) loans totaling $525 billion, the Small Business Administration (SBA) has begun the processes of accepting applications for loan forgiveness. However, in the time that has passed since borrowers first received PPP funding, some of the rules have changed. Following are the details you may have missed.

The PPP was introduced by the CARES Act to help small businesses, including independent contractors, sole proprietorships, partnerships and nonprofits, apply for and receive potentially forgivable SBA-backed loans for the purpose of maintaining their workforce and keeping their entities operational through the COVID-19 crisis period.

To have their loans forgiven, borrows must demonstrate economic necessity and limit the use of the funding they receive to pay workers and other operating expenses. More specifically, borrowers can receive 100 percent loan forgiveness when they use at least 60 percent of loan proceeds on payroll costs and no more than 40 percent on certain other expenses, including rent and utilities, over a 24-week period. The amount of loan forgiveness will be reduced when borrowers 1) spend less than 60 percent of funds on payroll costs, 2) reduce employees’ salaries, and/or 3) reduce the number of full-time employees below pre-pandemic levels. Unforgiven amounts generally must be repaid over five-years at an interest rate of 1 percent.

Forgiveness for Borrowers with PPP Loans Under $50,000

The SBA and Treasury Department introduced a simplified method for businesses with PPP loans of $50,000 or less to apply for loan forgiveness.

Applicable borrowers with PPP loans of $50,000 or less do not need to reduce their forgiven loan amounts for any cuts they may have made to the number of their full-time equivalent (FTE) employees or to salaries and wages.

With this exemption, businesses may receive full loan forgiveness by simply checking a box on a one-page SBA Form 3580S to validate that they used the funding they received for eligible expenses, including payroll costs and businesses mortgage interest, rent, lease and utility payments. Although there is no requirement that these borrowers show loan forgiveness calculations or submit extensive documentation beyond bank statements and receipts to support their claims, it is recommended that they maintain meticulous records in the event that their lender or the SBA requests additional information as part of their loan-review processes.

Forgiveness for Borrowers with PPP Loans of More than $2 Million

The SBA is introducing two new forms to help it analyze the economic necessity of PPP loans that exceed $2 million and identify any instances of potential fraud.

Borrowers seeking forgiveness for loans of more than $2 million must complete Form 3509 for for-profit business, or Form 3510 for non-profit entities, to self-certify, in good faith, that the funding they requested and received was “necessary” to maintain their ongoing operations during a time of economic uncertainty. Some of the factors the SBA will consider in its evaluations are borrowers’ business activities and access to other sources of liquidity.

With this in mind, for-profit and non-profit borrowers required to complete Forms 3509 and 3510 should be prepared to provide details and documentation supporting their claims of pre-COVID gross revenue and cash on hand as well as calculations of losses they expected to incur due to business closures and the resulting economic crisis. Now is a good time for borrowers with loans exceeding $2 million to reach out to their accountants to help assess these issues and prepare cash-flow analyses, pro forma statements and other projections to substantiate economic necessity.

About the Author: Joseph C. Leuchter, CPA, is a senior manager in the Tax Services practice of Berkowitz Pollack Brant Advisors + CPAs, where he helps individuals and businesses grow their wealth and profits while maintaining tax efficiency and compliance. He can be reached at the CPA firm’s Miami office at (305) 379-7000 or at