8562 / What do small business clients need to know about obtaining loan forgiveness under the paycheck protection program?

Early on, the small business administration (SBA) released a form version of the loan forgiveness application. Every PPP lender could use its own version of the SBA form application. Generally, after the business owner completed the application for loan forgiveness, the lender had 60 days to decide whether the borrower qualified. The SBA then had an additional 90 days to provide funding for the lender.

The loan application also required employers to certify whether they received loans in excess of $2 million (also considering loans by affiliates). (Generally, if the loan amount was $2 million or less, the government presumed that it was made in good faith—i.e., that the borrower did not have a viable alternate liquidity source). The provisions in the Consolidated Appropriations Act of 2021 imposed a firm $2 million cap on the amount of any PPP loan.

Planning Point: In a surprise move, the SBA began asking PPP lenders to issue loan necessity questionnaires to recipients of loans of at least $2 million. The questionnaires were detailed and request significant information. They were also issued without warning. It is expected that these information requests may be used in enforcement of PPP loan requirements or in determining eligibility for forgiveness. According to the SBA, the forms will be used to evaluate whether a recipient’s loan was made necessary by economic uncertainty. Information provided in the forms must be certified under threat of criminal action for false statements. The questions essentially asked borrowers to certify actual detrimental economic impact. Borrowers also had to provide information about local COVID-19 shutdown orders, other CARES Act aid, financial information and compensation to highly compensated owners and employees. Upon receipt, the borrower had only 10 days to complete the questionnaire and submit supporting documents.

Employers were required to certify that loan amounts were used to cover eligible expenses and that the borrower has accurately confirmed payments made for both payroll costs and non-payroll costs.

The application itself contained a worksheet to help small business clients calculate their loan forgiveness amount, as well as any reductions necessary because the employer reduced its workforce or employee salaries. The document provided a cure provision for employers who impermissibly reduced workforce (and may have brought employees back to work) or salary levels. The employer provided documentation to show the payroll costs it paid out during the relevant period—whether in the form of bank records or reports from a third-party payroll service. IRS payroll tax filing forms (i.e., Form 941) and state quarterly wage reporting forms, as well as payment receipts, cancelled checks or other account statements showing contributions to employee retirement accounts or healthcare were also necessary.