Navigating The PPP Loan Forgiveness Process

  • Contributors:
  • Sarah Vlasblom

UPDATE: The Paycheck Protection Program Flexibility Act of 2020 was signed into law on June 5, 2020. The Act makes significant changes to the Paycheck Protection Program. This post is updated to reflect those changes.

Business owner video chatting with experts about PPP loan forgiveness

If you received a paycheck protection program (PPP) loan, you may be preparing to apply for loan forgiveness. And, you probably have many questions about how to apply, where to apply, and what the application process looks like. We hope this article will help answer your questions.

The Small Business Administration (SBA) released its revised Loan Forgiveness Application Instructions for Borrowers on June 16, 2020. These instructions provide guidance, definitions, and worksheets you may need to calculate your loan forgiveness amount. When you apply for PPP loan forgiveness, you’ll submit your application to the lender that granted your loan.

You’ll need to give your lender the following documents:

  1. PPP Loan Forgiveness Calculation Form
  2. PPP Schedule A

Am I eligible for loan forgiveness?

When you received loan funds in your bank account, you had eight weeks to spend the funds on eligible expenses. However, the PPP Flexibility Act of 2020 extended the eight weeks to 24 weeks or Dec. 31, 2020, whichever arrives first. If you received a PPP loan before the PPP Flexibility Act of 2020 was passed, you may elect to keep eight weeks as your covered period.

If you used the loan to pay the following costs, the total amount of these costs will be eligible for forgiveness:

Eligible payroll costs

  • Compensation to employees (whose primary residence is in the US) in the form of salary, wages, commissions, bonuses, hazard pay, or similar compensation
    • Compensation isn’t eligible for forgiveness if it exceeds an annual salary of $100,000
  • Cash tips or the equivalents
  • Payment for vacation, parental, family, medical, or sick leave
  • Allowance for separation or dismissal
  • Payment for the provision of employee benefits (group health care coverage, insurance premiums, and retirement)
  • Payment of state and local taxes assessed on employee compensation

Eligible nonpayroll costs

  • Covered mortgage obligations: interest payments on any business mortgage obligation 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
  • 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

Advance payments on mortgage interest aren’t eligible for loan forgiveness.

Under the CARES Act, the SBA said, “The loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities. At least 75% of the forgiven amount must have been used for payroll.” However, the PPP Flexibility Act changed the forgiveness threshold. Now, companies must spend at least 60% of the forgiven amount on payroll costs. If they don’t meet the 60% threshold, the loan is eligible for partial forgiveness.

Also, 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.

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.


What does the loan application process look like?

At a minimum, you must submit a PPP loan forgiveness calculation form and PPP Schedule A. The loan calculation form will include:

  • Basic borrower and loan details – loan number, disbursement date, your payroll schedule, the covered period
  • 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.

Then, you’ll submit these application documents to your lender. 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 determination within 30 days of receiving it. Details on the appeal process haven’t been released.


Tell me about the EZ form.

The SBA also released an EZ loan forgiveness form for borrowers who may have simpler business models. If any of the following criteria apply to you, you can file Form 3508EZ.

  1. I’m a self-employed individual, independent contractor, or sole proprietor who had no employees at the time of my PPP loan application and I didn’t include any employee salaries in the calculation of average monthly payroll in my application.
  2. I didn’t reduce salary or hourly wages of any employee by more than 25% during 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.
  3. I didn’t reduce salary or hourly wages of any employee by more than 25% during 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.

View the instruction for Form 3508EZ here.


When should I apply for loan forgiveness?

Once you come to the close of your covered period, you should apply for loan forgiveness. You can begin to collect or track the necessary information ahead of time. You must request loan forgiveness within 10 months of the last day of your covered period.

Please complete this form to view our PPP loan forgiveness services. After clicking submit, you will be redirected to a document that outlines our services and fees. If you’d like us to perform any of these services, please make your selections, complete page one of the form and email it to caresact at beenegarter dot com. Contact us if you have any questions.

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. How do I prove that my loan request was necessary to support operations?

The SBA hasn’t outlined how or what they’ll accept as proof your business faced economic uncertainty. But, we have a few suggestions. Consider analyzing and 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 shut down

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? How will this affect my loan forgiveness?

Again, your loan forgiveness is based on how you use loan funds. If you terminated, laid off, or furloughed employees, or reduced their wages, your forgiveness amount will be reduced.

But, the PPP Flexibility Act allows you to rehire employees or reverse any reductions to salaries and wages for full-time equivalent employees by Dec. 31, 2020. If you rehire employees or restore their wages, you can recover your full loan forgiveness amount. In addition, your loan forgiveness amount won’t be reduced if you experience and document:

  • An inability to rehire individuals who were employees on Feb. 15, 2020, and an inability to hire similarly qualified employees for unfilled positions on or before Dec. 31, 2020
  • An inability to return to the same level of business activity you experienced on or before Feb. 15, 2020, due to compliance with government health and safety requirements

So, if you offer to rehire an employee at the same pay and rate and he refuses, you can exclude this employee from your FTE employee count. You should maintain written documentation of the offer and refusal. And, you need to notify your state’s unemployment office of this rejection within 30 days.


What should I know about repaying the 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, not two years. If you received your loan before June 5, 2020, you can work with your lender to extend the 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. Before the PPP Flexibility Act, the deferral period was six months.

Originally published 5/27/2020. Updated 6/10/2020.


If you’d like assistance navigating the PPP loan forgiveness process, let’s talk! We have a range of services and tools we can offer you.