The Paycheck Protection Program (PPP) authorized up to $660 billion in forgivable loans to small businesses to pay their employees during the COVID-19 crisis. PPP was designed to provide economic support by offering loans to enable companies to retain employees and pay certain operational expenses incurred during the COVID-19 pandemic.
We appreciate all of the small businesses that chose BancorpSouth to provide their Paycheck Protection Program (PPP) loan. We are proud to have processed and funded over 15,075 PPP loans totaling over $1.23 billion. These funds were provided over a broad range of industries across our eight-state footprint, most of which are small businesses. Providing the payroll and working capital necessary to support these businesses within our communities has helped retain over 170,000 jobs.
The next phase of the PPP is loan forgiveness and the following provides some important information you need to understand and consider as you begin preparing your application for forgiveness.
On October 8, 2020, the Small Business Administration (SBA) announced the creation of a streamlined application for borrowers with loan amounts of $50,000 or less (other than any borrower that together with its affiliates received loans totaling $2 million or greater), publishing the 3508S Form (and instructions). Applicants must submit documentation verifying forgivable payroll and non-payroll expenses, but they do not need to submit their calculations. Instead they will be required to retain the documentation supporting their certifications and calculations for six years. The most significant relief to borrowers that qualify for and submit their forgiveness application with the 3508S, is that the borrower is exempt from any reductions in the borrower’s loan forgiveness amount based on reductions in full-time equivalent (FTE) employees (section 1106(d)(2) of the CARES Act) or reductions in employee salary or wages (section 1106(d)(3) of the CARES Act) that would otherwise apply. For these borrowers, they do not need to calculate or consider FTE or salary/hourly wage reductions.
There continues to be Congressional activity to initiate a streamlined forgiveness process for those borrowers with loan amounts of $150,000 or less; however, it now appears it could be months before legislation to approve this process could be approved. Borrowers with loan amounts of between $50,000 and $150,000 may benefit by delaying their application given what could be a much more streamlined forgiveness application and process. We will continue to monitor the progress of legislation around this matter to determine if a streamlined forgiveness program change is approved by Congress for loan amounts of $150,000 or less. If changes are approved, they will be posted to this web page.
As in the origination phase, BancorpSouth will be actively engaged, will work diligently to be a resource of information on the forgiveness process, and will facilitate the submission of your information to the SBA for forgiveness consideration.
HOW CAN I APPLY FOR PPP LOAN FORGIVENESS?
BancorpSouth customers who obtained their PPP loan through our bank may submit their forgiveness application through an easy-to-use on-line application experience. If you are ready to begin the PPP loan forgiveness process, please contact your Relationship Manager. This on-line process allows you the flexibility to initiate forgiveness and to provide supporting documentation on your time schedule and also experience the following benefits:
- A substantial amount of information for your PPP loan is pre-filled.
- You can use the paper applications supplied by the SBA (Standard 3508 Form, 3508EZ Form or the recently released 3508S Form) as a reference document. Key information required to be input for the determination of eligibility and for the forgiveness calculation mirrors the information from the paper applications.
- The online application includes question-and-answer logic to help you determine which forgiveness application you must use: the Standard 3508 Form, 3508EZ Form or 3508S Form.
- All supporting documents can be uploaded securely directly through the portal.
- You will have the ability to begin an application, save the steps completed and information you have entered, exit the application, and return multiple times to complete the process, including editing information already entered.
- The application provides reference information and tips for each data entry field as you progress through the steps.
- A forgiveness calculator is included so you can quickly determine the amount of forgiveness you are eligible for consistent with SBA guidance and based upon data you have entered.
- As always, you will have access to your Relationship Manager to assist you in the process. The Relationship Manager can view the data you have entered and review the documents you have uploaded
- Once the application is ready for submission, as in the loan origination phase, you will receive via email the final completed forgiveness application that is required by SBA, allowing you to execute it electronically and return it to the bank for further submission to the SBA.
PPP LOAN FORGIVENESS REQUIREMENTS:
As a reminder, in general there are three separate requirements that determine the loan forgiveness amount:
- How the PPP loan funds are used (“payroll costs” versus “non-payroll costs” as each of these is defined by SBA guidance). To maximize forgiveness, at least 60% of the loan must be used for payroll costs, plus health and retirement benefit costs. If the amount is below 60%, the amount of forgiveness will be reduced.
- The extent a borrower maintains employee headcount (average full time equivalent employees- FTE). A borrower that is eligible to file the 3508S form is exempt from reductions in forgiveness based upon reductions in FTEs.
- The amount in average salary or hourly wages of “protected” employees (those earning up to $100,000 annualized in 2019) or any employee employed in 2020 and not in 2019 that are reduced by more than 25%. A borrower that is eligible to file the 3508S form is exempt from reductions in forgiveness based upon reductions in salaries or wages.
WHEN CAN YOU FILE FOR PPP LOAN FORGIVENESS?
A borrower must first determine the “Covered Period” or “Alternative Payroll Covered Period” applicable to their situation.
- Covered Period is defined by SBA guidance as either the 8-week or 24-week period beginning on the borrower’s PPP loan disbursement date.
- Borrowers with a biweekly (or more frequent) payroll schedule may elect an Alternative Payroll Covered Period to calculate eligible payroll costs using the 8-week or 24-week that begins on the first day of their first pay period following their PPP loan disbursement date.
- In no event can the Covered Period or Alternative Payroll Covered Period extend beyond 12/31/2020.
- Borrowers who had their loans funded (disbursed) prior to June 5, 2020 may elect an 8-week or 24-week period. Borrowers who had their loans funded (disbursed) on June 5th or later, must use the 24-week period.
Once the Covered Period or Alternative Payroll Covered Period is determined, a borrower can submit a forgiveness application at any time after the end of the Covered Period or Alternative Payroll Covered Period. In some cases, the borrower may also submit before the end of the Covered Period or Alternative Covered Period, provided that:
- The borrower has used all of the loan proceeds for which the borrower is requesting forgiveness, and
- The borrower’s loan forgiveness application accounts for any salary reductions in excess of 25 percent for the full covered period.
As a reminder, borrowers with loan amounts of between $50,000 and $150,000 may benefit by waiting to file for forgiveness to determine if a streamlined forgiveness program change is approved through Congressional action in the months ahead that expands the number of borrowers who qualify.
WHAT APPLICATION FORM AM I REQUIRED TO USE?
The SBA has published three application forms, the Standard 3508 Form, 3508EZ Form and the 3508S Form. A borrower is required to use the Standard 3508 Form, unless the borrower qualifies under certain situations to use either 3508EZ Form or the 3508S Form.
A borrower whose PPP loan amount was $50,000 or less should use the 3508S Form. Borrowers who received a PPP loan amount of $50,000 or less are exempt from reductions in loan forgiveness amounts based on reductions in full-time equivalent employees or in salaries or wages, and require fewer calculations and less documentation for eligible borrowers. The only criteria preventing a borrower from using this form is if the borrower, together with its affiliates, received PPP loans totaling $2 million or more.
For a borrower to use the 3508EZ Form they must be able to attest to one of the following:
The borrower is a self-employed individual, independent contractor, or sole proprietor who had no employees at the time of the PPP loan application and did not include any employee salaries in the computation of average monthly payroll in the Borrower Application Form (SBA Form 2483).
The borrower did not reduce annual salary or hourly wages of any employee by more than 25 percent during the Covered Period or the Alternative Payroll Covered Period compared to the period between January 1, 2020 and March 31, 2020 (for purposes of this statement, “employees” means only those employees that did not receive, during any single period during 2019, wages or salary at an annualized rate of pay in an amount more than $100,000) AND the Borrower did not reduce the number of employees or the average paid hours of employees between January 1, 2020 and the end of the Covered Period. (Ignore reductions that arose from an inability to rehire individuals who were employees on February 15, 2020 if the Borrower was unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020. Also ignore reductions in an employee’s hours that the Borrower offered to restore and the employee refused- See Federal Register/Vol. 85, No. 105/Monday, June 1, 2020/Rules and Regulations for more details).
The borrower did not reduce annual salary or hourly wages of any employee by more than 25 percent during the Covered Period or the Alternative Payroll Covered Period compared to the period between January 1, 2020 and March 31, 2020 (for purposes of this statement, “employees” means only those employees that did not receive, during any single period during 2019, wages or salary at an annualized rate of pay in an amount more than $100,000) AND the Borrower was unable to operate during the Covered Period at the same level of business activity as before February 15, 2020, due to compliance with requirements established or guidance issued between March 1, 2020 and December 31, 2020 by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to the maintenance of standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19.
WHAT COSTS ARE ELIGIBLE TO DETERMINE FORGIVENESS?
Payroll Costs consisting of compensation to employees (whose principal place of residence in the United States) in the form of:
- Cash compensation (maximum of $100,000 on an annual basis for each employee) of the gross amount of salary, wages, commissions or similar compensation; cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips); payment for vacation, parental, family, medical or sick leave; allowance for separation or dismissal; and
- Non-cash compensation in the form of payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums, and retirement; payment of state and local taxes assessed on compensation of employees
- Cash Compensation eligible for forgiveness for each individual employee may not exceed $100,000 annually ($15,385 for 8 week or $46,154 for 24 week Covered or Alternative Covered Period).
- For an independent contractor or sole proprietor, in addition to compensation for employees, an amount for “owner compensation replacement” equal to:
- For borrowers using a 24-week CP or ACP: The lesser of $20,833 or the 2.5 month equivalent of their applicable compensation in 2019.
- For borrowers using a 8-week CP or ACP: The lesser of $15,385 or the 2.5 month equivalent of their applicable compensation in 2019.
- Special rules apply for compensation to owner-employees or partners of businesses:
- For borrowers using an 8-week CP or ACP: The lesser of $15,385 per individual or eight week’s worth (8/52) of their 2019 compensation, in total across all businesses in which they have ownership.
- For borrowers using a 24-week CP or ACP: The lesser of $20,833 per individual or 2.5 months’ worth (2.5/12) of their 2019 compensation, in total across all businesses in which they have ownership.
- For owner-employees of C Corporations and S Corporations, the limit on their 2019 compensation includes employer retirement contributions across all businesses.
- Covered mortgage obligations: payments of mortgage interest (not including any prepayment or payment of principal) on any business mortgage obligation on real or personal property incurred before February 15, 2020. Unsecured loans are excluded.
- Covered rent obligations: business rent or lease payments pursuant to lease agreements for real or personal property in force before February 15, 2020.
- Covered utility payments: business payments for a service for the distribution of electricity, gas, water, telephone, transportation (transportation utility fees assessed by local and state governments), or internet access for which service began before February 15, 2020.
WHAT DOCUMENTATION IS REQUIRED TO BE SUBMITTED TO THE BANK?
Borrowers should complete and upload or submit to their Relationship Manager either the Bank’s Form 3508 Borrower Summary Page or Form 3508EZ Borrower Summary Page uploading it to “Other Documentation”. A Summary Page is not required from borrowers using the 3508S Form.
- If you are submitting your application through the Bank’s online application a Standard 3508 Form, 3508EZ Form or 3508S Form is not required at initial submission, but will instead be completed and executed by the borrower electronically once the forgiveness application process is completed.
- If you are submitting your application in paper form, you are required to submit a fully completed and executed Standard 3508 Form, 3508EZ Form or 3508S Form with all required documents.
Payroll: Documentation for the Covered Period or Alternative Payroll Covered Period verifying the eligible cash compensation and non-cash benefit payments by employee consisting of each of the following:
- Bank account statements or third-party payroll service provider reports documenting the amount of cash compensation paid to employees (Proof of Payment).
- Detail must be provided supporting the calculation for employee compensation for those employees less than $100,000 in 2019 or not employed by borrower in 2019 AND those employees who made more than $100,000 in 2019.
- If more than one owner/employee/self-employed individual/general partner is included in Compensation to Owners on PPP Schedule A, then a list of the names and payments to each must be provided.
- Additionally, if the borrower is submitting as part of their forgiveness application payroll for any owner-employee(s) or partner(s), a copy of the 2019 K-1(s) must be provided for each employee for which payroll is submitted. If a K-1 is not applicable, then the borrower must provide details of their compensation for 2019.
- Tax forms (or equivalent third-party payroll service provider reports):
- Payroll tax filings reported, or that will be reported, to the IRS (typically, Form 941); and
- State quarterly business and individual employee wage reporting and unemployment insurance tax filings reported, or that will be reported, to the relevant state.
- Payment receipts, canceled checks, or account statements (Proof of Payment) documenting the amount of any employer contributions to employee health insurance and retirement plans.
- Borrowers who file Schedule C or Schedule F, must provide a copy of their filed 2019 Schedule C or Schedule F.
Full-Time Equivalency (FTE): FTE documentation is NOT REQUIRED for a borrower using the 3508S application. For all others, documentation showing:
- The average number of FTE employees on payroll during the Covered Period or Alternative Payroll Covered Period, and
- The “Reference Period” selected by the borrower:
- the average number of FTE employees on payroll per month employed by the Borrower between February 15, 2019 and June 30, 2019;
- the average number of FTE employees on payroll per month employed by the Borrower between January 1, 2020, and February 29, 2020; or
- in the case of a seasonal employer, the average number of FTE employees on payroll per month employed by the Borrower between February 15, 2019, and June 30, 2019; between January 1, 2020, and February 29, 2020; or any consecutive twelve-week period between May 1, 2019, and September 15, 2019.
- Selected periods must be the same selected for purposes of completing PPP Schedule A, Line 11
- If the borrower is submitting the 3508EZ application and selected Attestation Two, then the borrower must provide the average number of FTE employees on payroll employed by the borrower on January 1, 2020 and at the end of the Covered Period. FTE documentation is not required for a borrower submitting the 3508EZ application and who selected either Attestation One or Attestation Three.
- Borrower can select from two calculation options:
- For each employee, enter the average number of hours paid per week, divide by 40, and round the total to the nearest tenth. Maximum for each employee capped at 1.0.
- The simplified method that assigns a 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work fewer hours.
Non-payroll: Documentation verifying existence of the obligations/services prior to February 15, 2020, and documentation (Proof of Payment) of eligible payments from the Covered Period
- Business mortgage interest payments:
- copy of lender amortization schedule and receipts or canceled checks verifying eligible payments from the Covered Period; or
- lender account statements from February 2020 and the months of the Covered Period through one month after the end of the Covered Period verifying interest amounts and eligible payments.
- Business rent or lease payments:
- copy of current lease agreement and receipts or canceled checks verifying eligible payments from the Covered Period; or
- lessor account statements from February 2020 and from the Covered Period through one month after the end of the Covered Period verifying eligible payments.
- Business utility payments: Copy of invoices from February 2020 and those paid during the Covered Period and receipts, canceled checks or account statements verifying those eligible payments.
SBA PPP FORGIVENESS FAQs:
The SBA and Treasury continue to provide updated guidance on all PPP-related items, the most recent Frequently Asked Questions on PPP Loan Forgiveness is provided for your convenience.
The Bank will continue to provide a summary of updated guidance and forms as they are provided by the SBA.
NOTICE: The information in this document is not definitive and requirements can change as new guidance is issued. As necessary, you should consult with your accountant, attorney or other third party advisor on questions regarding forgiveness of your PPP loan.
Last Update: January 20, 2021