PPP Loan Forgiveness
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As of May 28, 2021, the Paycheck Protection Program has run out of funding. You can learn more about the PPP with our COVID-19 resource hub.

The Paycheck Protection Program under the CARES Act has gone through some significant changes over the last twelve months, through new updates in the Paycheck Protection Program Flexibility Act, the Small Business Administration’s (SBA) Interim rules, the most recent Emergency Coronavirus Relief Act of 2020 package in December, and numerous recent changes announced by the Biden Administration. These changes have focused on trying to simplify the loan forgiveness process for lenders and borrowers.

There are three common loan forgiveness categories that borrowers fall under in processing loan forgiveness applications. As each borrower has different needs for these PPP funds, the PPP funds must be used toward payroll and non-payroll expenses. Borrowers fall under three categories as they prepare their loan forgiveness application. These categories are borrowers that are at the 60/40 threshold, borrowers that have used more than 60% of the loan for payroll costs and the remaining balance on nonpayroll costs, and borrowers that have used over 40% of the loan in nonpayroll expenses. The third category requires a bit more attention because part of the loan can be forgiven and need to be reproportioned.

In order to shed light on the process, it is important to first review major changes from the beginning of the program to how its changes influenced how borrowers use which forms, understand loan forgiveness given the business’ size, number of employees, payroll schedule, and other factors to keep in mind when borrowers are filling out their loan forgiveness form.

Under the CARES Act, the introduction of the Paycheck Protection Program was aimed to assist small businesses during this pandemic. Its goals were to provide PPP loans proceeds to small businesses to maintain employee levels during this difficult period. When the loans were issued, the first day of the disbursement period fell on the first day of the Covered Period for the loan proceeds need to be spent either during the 8-week or 24-week period following the PPP loan disbursement date depending on the application. The Alternative Covered Period is the 8-week or 24-week period following the first day of the first pay period following the loan disbursement date. At the end of the covered period, the PPP recipient should apply for loan forgiveness within the first 10 months since the end of the covered period day. This would have been noted the. Application.

The one major tenet of the program requirements is that the PPP loan amount can be used to help business owners require borrowers to spend at least 60% or more of their loan on payroll in order to receive full forgiveness. In addition, payroll costs include sick leave, medical expenses, retirement benefits, all employer state taxes as well as local taxes, and federal income taxes withheld by the employer. The remaining 40% of the funds may be used on the expanded list of non-payrolls covered expenses. Under the PPP Flexibility Act, in addition to changing the threshold from 75/25 to 60/40 on eligible expenses, it expanded eligible non-payroll costs that are eligible for forgiveness includes covered business mortgages, covered rent obligations, covered utility payments for gas, electric, water, etc. These costs would have to incurred prior to the Covered Period or during the Alternative Covered Period and paid during the Covered Period in order to be eligible for loan forgiveness. In addition, the covered period from the loan expanded from the eight-week covered period a 24-week covered period.

The loan maturity rate was extended by the PPP Flexibility Act. If the lender received an SBA loan number for PPP after June 5, 2020, then it has a five-year maturity rate. If it was made prior to June 5th, then it has a two-year maturity. In the latter case, both the borrower and lender can work to discuss the term of the borrower’s loan and see if it is possible for an extension.

Full loan forgiveness eligibility is applicable to lenders during either their 8 or 24-week period after using all the loan funds and applying for loan forgiveness prior to 10 months from the last day of the covered period pay. Maintaining employee and compensations levels, 60% or more of the loan proceeds are spent on eligible payroll costs, and loan proceeds are spent on payroll costs and eligible expenses from non-payroll costs. There are some other factors, but working in good faith and safe harbor exemptions are made as the purpose of this program is to maintain employee levels.

Calculating Loan Forgiveness:

In order to calculate your full-time employment equivalent employees (FTE), simply, hours paid each week/40 = FTE. The number of hours is important to keep in mind. In calculating part time and full time workers. An FTE employee is someone who works for 40 or more hours per week and would receive a score of 1.0. For part-time employees who less than 40 hours would receive a score less than 1.0. FTE can’t exceed 1 so if you have employees working over 40, then their FTE score would remain 1. This will impact the amount of loan forgiveness as well. The number of full-time equivalent employees as well as part time employees calculated together will determine your score.

In addition, there are other factors that can play into your loan forgiveness such as wage caps, salary/wage reductions, FTE reduction safe harbor and other loan forgiveness reduction exemptions. Some loan forgiveness exemptions include that can be included are employees rejecting a rehire offer, employees resigning or choosing to work reduced hours, or employees fired with just cause. These exemptions may not be counted against you. In these situations, it is important to talk to your lender should these issues come up in good faith. For example, if a borrower had to furlough a number of employees before the PPP loan and provided a written offer a reemployment letter in which they refuse, that employee FTE may be excluded when calculating forgiveness. If there are employees that refuse, please be sure to have that rejection documentation on file.

Selecting the Correct Form

When applying for loan forgiveness, it is important to consult with your lender on which form is right for you to fill. As mentioned earlier, there have additional forms to help simplify different business sizes. For businesses that meet the 60/40 exactly as well as businesses that go over 60% toward payroll expenses will be able to be forgiven while a business spending 59% or less on a loan will have to readjust their loan to the 60/40 proportion. In addition to the existing forms, there is a new form for loans of 150,000 or less in the future.

Over time, the SBA continues to release new loan forgiveness applications to help simplify the process for borrowers who have taken smaller loans, for those self-employed, etc. Borrowers who are eligible to fill out the PPP Loan Forgiveness Application Form 3508EZ fall into one of the following: are self-employed or have no employees, did not reduce their employee’s salaries or wages by 25% or experienced reductions in business activity due to COVID-`19. Thus, the EZ Form is applicable to sole proprietors, self-employed individuals, independent contractors. It was to provide a simplified version than the original for the above-mentioned groups. The third loan simplified version for loan forgiveness was release in October 2020.

The PPP Loan Forgiveness Application Form 3508S was designed to help any PPP borrower who borrowed less than $50,000. This application was released on October of 2020 under the SBA’s interim final rule in consultation with the Treasury that allowed borrowers who a PPP loan amount of $50,000 or less. In addition, this application would be exempt from forgiveness reductions based on reductions in FTE employees and reductions in employee salaries or wages.

The third and final scenario focuses on borrowers used their PPP loan and spent over 40% on nonpayroll costs. The good news is that part of the loan can be forgiven. The forgiveness calculation would be adjusted based on the amount of the payroll costs to maintain that 60/40 split. For example, if a borrower received a PPP loan amount $100,000 and spent $30,000 on payroll costs and the remaining balance on non-payroll costs, then loan forgiveness calculation would only allow $20,000 of non-payroll costs in addition to the $30,000 payroll costs. In this example, the remaining $50,000 would need to be repaid over time based on the loan agreement.

New Legislation and Additional PPP Information

On December 27, 2020, Congress passed the Emergency Coronavirus Relief Act of 2020. This latest COVID-19 relief package provided a significant amount of funding the program even for borrowers who need a second loan. In addition, it provided with a new loan forgiveness for borrowers who have a $150,000 or less loan. This form is yet to be published as the SBA has to create it by January 20, 2021.

In addition to new funding for this program, it included new legislation on second-draw PPP loans. There are a couple of requirements to be eligible: the company has 300 or fewer employees, use or will use the full amount of their first PPP loan on or before the expected date for the second PPP loan to be disbursed to the borrower, experienced a loss of 25% or more in revenue in all or part of 2020 compared to those periods in 2019. One final addition to be noted is that this legislation expanded nonpayroll costs to include


The Paycheck Protection Program’s loan forgiveness program continues to undergo new changes that are aimed to help simplifying the process for both lenders and borrowers. The most important key is to maintain a 60/40 or better ratio of using those PPP loans on eligible payroll costs as well as maintaining the other qualifications for loan forgiveness. It is important to maintain your files on both payroll and nonpayroll costs that you used on the loan. In addition, it is helpful to maintain and talk with your lender on other issues as they come about as every borrower has different needs on how to use their loans and to qualify for the most amount of PPP loan forgiveness as possible. For additional information, visit the SBA’s website and to look up their FAQs for additional information. 

The recent legislation, Emergency Coronavirus Relief Act of 2020 expanded the nonpayroll expenses list for borrowers as well as instructed the SBA to create a new form for loans of $150,000 or less.  As we are approaching January 20, 2021, the government’s composition will continue to change with the newly President Joe Biden and a flipped Democratic Senate. For the first time in ten years, both the Presidency and Congress is controlled by the Democratic party. Part of President Biden’s first 100 days is focused on pandemic relief and will introduce new plans in the coming weeks. One of the topics will continue to focus on the Paycheck Protection Program and loan forgiveness.

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