Navigating The PPP Loan Forgiveness Process

Business owner video chatting with experts about PPP loan forgiveness

If you received a Paycheck Protection Program (PPP) loan, you may have questions about pursuing loan forgiveness – how to apply, where to apply, and what the process looks like. Loan forgiveness is a key benefit of this program, so it’s something you want to get right. 

The Small Business Administration (SBA) released an interim final rule (IFR) about PPP loan forgiveness on Jan. 19, 2021. The IFR provides the latest guidance, definitions, and answers about the forgiveness process for borrowers and lenders. The IFR also consolidates prior rules related to forgiveness and incorporates changes made by the Economic Aid Act.  

We hope this article will help answer your questions and allow you to submit your forgiveness application with confidence. 

Am I eligible for loan forgiveness? 

If you used your PPP loan to pay eligible payroll and nonpayroll costs during the loan’s covered period, the total amount of these costs will be eligible for forgiveness. The date you receive your PPP loan funds marks the start of your covered period. The covered period ends on a date you select, but it must be between 8 and 24 weeks.  

What are eligible payroll costs?

  • Cash compensation to employees (whose primary residence is in the US) in the form of salary, wages, commissions, bonuses, hazard pay, or similar compensation 
  • Cash tips or the equivalents 
  • Payment for vacation, parental, family, medical, or sick leave 
  • Allowance for separation or dismissal 
  • Employer payments for the provision of employee benefits (group health caredental, vision, life, and disability insurance premiums; and retirement) 
  • Employer payments of state and local taxes assessed on employee compensation 

Remember! Employee compensation eligible for forgiveness may not exceed an annual salary of $100,000, prorated for the covered period. This limit applies to each employee and all types of compensation listed above. 

For owners, compensation is limited based on entity type, but generally, it’s capped at $20,833 or the 2.5-month equivalent of the individual’s compensation in the year used to calculate the loan amount (2019 or 2020). 

Payroll costs paid or incurred during your covered period are eligible for forgiveness. The SBA considers payroll costs paid on the day paychecks are distributed or ACH credit transactions are originated. Payroll costs incurred, but not paid, during the last pay period of the covered period are eligible for forgiveness if they were paid on or before the next regular payroll date. 

What are eligible nonpayroll costs? 

  • Covered mortgage obligations – interest payments on business mortgage obligations on real or personal property incurred before Feb. 15, 2020
  • Covered rent obligations – business rent or lease payments pursuant to lease agreements for real or personal property in force before Feb. 15, 2020.
    • If a related party owns the building, rent is limited to the mortgage interest paid by the related party during the covered period.
  • Covered utility payments – business payments for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before Feb. 15, 2020
  • Operations expenditures – payments for any business software or cloud computing service that facilitates business operations, product or service delivery, the processing, payment or tracking of payroll expenses, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records, and expenses 
  • Property damage – costs related to property damage, vandalism, or looting due to public disturbances that occurred during 2020 that weren’t covered by insurance or other compensation 
  • Supplier costs – payments made to a supplier for the supply of goods that are essential to the entity’s operations at the time the payment was made. The contract or purchase order must have been in effect before the loan’s covered period. For perishable goods, the contract or purchase order must have been in effect before or at any time during the covered period. 
  • Worker protections – operating or capital expenses made to comply with CDC, OSHA, Department of Health and Human Services’, or local or state requirements to maintain worker or customer safety related to COVID-19. Examples include the installation of drive-thru windows, air filtration systems, physical barriers such as sneeze guards, any health screening costs, and the expansion of additional indoor, outdoor, or combined business space. 

According to the SBA, eligible nonpayroll costs can’t exceed 40% of the loan forgiveness amount. You must use 60% of your PPP loan on payroll costs. 

If you received a PPP loan, but haven’t received a forgiveness payment as of Dec. 27, 2020, you can include operations expenditures, property damage costs, supplier costs, and worker protection expenditures in your forgiveness calculation. These items were added as eligible nonpayroll costs with the passing of the Economic Aid Act. You must pay all eligible nonpayroll costs during the covered period. Or, you must incur them during the covered period and pay them on or before the next regular billing date. 

 Advance payments on mortgage interest aren’t eligible for loan forgiveness. Amounts attributable to the business operation of the borrower’s tenant or sub-tenant aren’t eligible for loan forgiveness. 


What does the loan forgiveness application process look like?

Many borrowers will submit PPP loan forgiveness application – Form 3508 – and the corresponding PPP Schedule A. Form 3508 includes: 

  • Basic borrower and loan details – loan number, disbursement date, your payroll schedule, your covered period, NAICS code 
  • Total payroll and nonpayroll costs 
  • Any full-time equivalency (FTE) and salary/hourly wage reduction adjustments 
  • Potential forgiveness amounts 
  • Final forgiveness amount 
  • Certifications that loan funds were used in accordance with program requirements 

Schedule A demonstrates your ability to keep or rehire employees and maintain their salary levels. Therefore, it asks for total cash compensation amounts, average FTE, and amounts that will support the information you’ll provide on the loan forgiveness calculation form. Use the Schedule A worksheet to go through the process. You can also pull this data from your payroll system or ask your payroll provider for it. 

Safe harbor provisions are available, so make sure to consider these when completing your FTE and wage reduction calculations. 

Next, submit these application documents to the lender that’s servicing your loan. Within 60 days of receiving a complete application, your lender should make a decision. If approved, your lender will submit a report to the SBA with the expected forgiveness amount.

After 90 days, the SBA should make its decision and forgive that amount. The SBA may require additional documentation or ask questions. As a borrower, you can appeal the SBA’s decision within 30 days of receiving it. Borrowers must retain all documentation for six years after the date the loan is forgiven or repaid in full.  


Is there a shorter application?

Yes, the SBA has an EZ loan forgiveness form for borrowers that meet certain criteria. If either of the following criteria apply to you, you can file Form 3508EZ. 

  • I didn’t reduce the salary or hourly wages of any employee by more than 25% during the covered period (compared to the most recent quarter prior to the covered period) and I didn’t reduce the number of employees or the average paid hours of employees between Jan. 1, 2020, and the end of the covered period. 
  • I didn’t reduce the salary or hourly wages of any employee by more than 25% during the covered period (compared to the most recent quarter prior to the covered period) and I was unable to operate during the covered period at the same level of business activity I experienced before Feb. 15, 2020, due to compliance with health directives. 


What’s the simplified forgiveness process for loans under $150,000?

If you received a PPP loan of $150,000 or less, you mususe Form 3508S to apply for forgiveness. When you apply, you aren’t required to submit any additional documentation. All you’ll have to do is:  

  1. Complete the one-page form
  2. Certify that you complied with the requirements of the Paycheck Protection Program and your application is true and correct  

If you’re requesting forgiveness of your second draw loan, you may need to submit documentation that supports the gross receipts reduction certification you made on your original loan application. If you haven’t submitted these documents to your lender already, you’ll need to do so when applying for forgiveness of your second draw loan.  

Borrowers that received PPP loans of more than $50,000 (or together with their affiliates received loans totaling $2 million or more), must be able to make certifications regarding wage and FTE reductionsIf borrowers can’t make these certifications, they must adjust their requested loan forgiveness amount for these items. 

Once you submit Form 3508S, you must retain all records that prove your compliance with this program. Keep employment records for four years and all other records for three years, including documents that prove you aren’t subject to any forgiveness amount adjustments due to wage or employee reductions.

In August 2021, the SBA launched two new initiatives: a PPP Direct Forgiveness Portal and COVID Revenue Reduction Scores. 

  • PPP Direct Forgiveness Portal | If your loan is $150,000 or less, you can apply for loan forgiveness directly with the SBA through its new portalYou don’t have to go through your lender. However, your lender must opt in to using this portal. Before you do anything, contact your lender to confirm its participating in the SBA’s direct forgiveness process. Thportal launches on Wednesday, August 4. Click here for more details. 
  • COVID Revenue Reduction Scores | If you received a second draw PPP loan of $150,000 or less and didn’t submit documentation of revenue reduction when you applied for the loanyou’ll receive a COVID Revenue Reduction Score. This score is an alternative to providing documentation of your revenue reductionif it meets or exceeds a certain value. The score will live in the SBA’s portal and be available to lenders. If you use the SBA’s portal to apply for forgiveness, you’ll also see your score.  


If I receive a second draw PPP loan, what do I need to know about forgiveness?

You must submit separate forgiveness applications for each loan. If your second draw loan is more than $150,000, you must submit a loan forgiveness application for your first PPP loan before, or simultaneously with, the loan forgiveness application for the second draw loan. You can’t apply for forgiveness of your second draw loan before you apply for forgiveness of your first draw loan.  

When you apply for forgiveness for your second draw loan, you must certify that you used the first PPP loan on eligible expenses before the disbursement of your second draw loan.  


When should I apply for loan forgiveness?

You can apply for forgiveness any time after your covered period, but you must apply within 10 months of the last day of your covered period. If you don’t apply within 10 months, you must begin paying principal and interest on the loan. 

We recommend that you collect or track the necessary information before applying. 


What if my loan is more than $2 million? 

When you applied for a PPP loan, you made a good-faith certification that the current economic uncertainty makes your loan request necessary to support your operations. 

If you receive a PPP loan that’s less than $2 million, the SBA will assume your loan request was made in good faith. The SBA will review all loans greater than $2 million to ensure those borrowers are complying with program requirements.

If the SBA finds you didn’t have an adequate basis for the loan, you’ll have to pay the outstanding loan balance. And, the SBA will inform your lender that you’re not eligible for loan forgiveness. Check out this FAQ sheet for more info (question 46 addresses this topic). 

However, the SBA reserves the right to review any PPP loan, regardless of size, to determine if that borrower is eligible for a PPP loan. It may look at whether the borrower calculated their loan amount correctly, used the funds for eligible costs, and whether the borrower is eligible for the amount of forgiveness it’s requesting. 


My loan is more than $2 million. Do I need to prove that my loan request was necessary to support operations?

The SBA has dropped the PPP Loan Necessity Questionnaire. However, it’s still a good idea to maintain documentation that supports your economic need for the loan, just in case you’re audited. Consider documenting the following factors: 

  • The length of your state’s shutdown order 
  • The number of employees furloughed, laid-off, or terminated 
  • The number of employees you would have furloughed, laid-off, or terminated if you didn’t receive the PPP loan 
  • Any reductions in employee benefits 
  • Technology costs paid to transition to a remote workforce 
  • Any decrease in business revenue during the shutdown 
  • Any costs required and incurred to maintain operations such as PPE, increased sanitation, entry screenings, employee training, or any other OSHA requirements 

Keep in mind, these factors may vary by industry, business structure, and whether or not your business was essential.


What if I reduced my staff or their pay? How will this affect my loan forgiveness?

Your loan forgiveness amount is based on how you use loan funds. If you terminated, laid off, furloughed employees, or reduced their wages by more than 25%, your forgiveness amount will be reduced. 

There are three safe harbors available. If any of the following situations apply to you, you can disregard the corresponding wage or FTE employee reductions that may lower your loan forgiveness amount. 

  1. If you restore wage levels by Dec. 31, 2020, or by the last day of your loan’s covered period if your loan was made after Dec. 27, 2020, you don’t have to calculate any wage reductions. 
  2. If you restore FTE employees by Dec. 31, 2020, or by the last day of your loan’s covered period if your loan was made after Dec. 27, 2020, you don’t have to calculate any FTE reductions. 
  3. If you were unable to operate at the same level of business activity as before Feb. 15, 2020, due to compliance with government health directives, you don’t have to calculate any FTE reductions.

In addition, your loan forgiveness amount won’t be reduced if you: 

  • Offered to restore employee hours at the same salary or wages, even if the employee doesn’t accept 
  • Fired an employee for cause, or the employee voluntarily resigns or requests a schedule reduction 
  • Have a PPP loan of $50,000 or less 

 You should maintain written documentation of these situations. If you offer to rehire an employee and he or she refuses, you need to notify your state’s unemployment office of this rejection within 30 days. 


What should I know about repaying my PPP loan?

If you receive your loan after June 5, 2020, any portion of your loan that isn’t forgiven will have a five-year loan term. If you received your loan before June 5, 2020, you can work with your lender to extend the original two-year term to five years. The interest rate is 1%. 

You can defer principal and interest payments until the SBA compensates your lender with the forgiven amount. If you want to avoid repaying your loan, apply for forgiveness within 10 months after your covered period ends. If your forgiveness request is rejected – completely or partially – the SBA will notify you and your lenderYour lender is responsible for telling you when your first payment is due.

Originally published 5/27/2020. Updated 8/4/2021.

PPP Loan Forgiveness Resources

Form 3508

PPP Loan Forgiveness Calculation Form, Certifications, Schedule A Worksheet & Instructions

Form 3508EZ

PPP Loan Forgiveness Application Form, Certifications & Instructions

Form 3508S

PPP Loan Forgiveness Application Form, Certifications & Instructions
Only for borrowers with loans under $150,000