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Jan 29, 2021
3 min read
Last update: Jul 14, 2023

PPP Loan Forgiveness Guide

If you’ve applied for a Paycheck Protection Program (PPP) loan or are considering applying for a PPP loan, you may have questions about how to have your loan forgiven. Since navigating the PPP loan forgiveness waters can be a bit overwhelming, we’ve created this comprehensive guide to help you understand everything you need to know about having your PPP loan forgiven.

What Does PPP Loan Forgiveness Mean?

The PPP was primarily designed to incentivize business owners to keep their employees on payroll. Once you receive your PPP loan and spend the full amount (with at least 60% of that amount being used for payroll costs), you are eligible to apply to have your loan forgiven—meaning you are no longer required to repay it.

When Can I Apply for PPP Loan Forgiveness?

You can apply for forgiveness once you’ve used the full amount of your PPP loan up to the maturity date of the loan. According to the SBA, “if borrowers do not apply for forgiveness within 10 months after the last day of the covered period, then PPP loan payments are no longer deferred, and borrowers will begin making loan payments to their PPP lender”.

What is the Covered Period?

The SBA defines the “Covered Period” as “the date the loan was originally disbursed. It ends on a date selected by the Borrower that is at least 8 weeks following the date of loan disbursement and not more than 24 weeks after the date of loan disbursement.

For example, if the Borrower received their PPP loan proceeds on Monday, April 20, 2020, the first day of the Covered Period is Monday, April 20, 2020 and the final day of the Covered Period is any date selected by the Borrower between Sunday, June 14, 2020 and Sunday, October 4, 2020.”

Can Both First and Second Draw Loans Be Forgiven?

Yes, both First Draw and Second Draw PPP loans can be forgiven. The forgiveness requirements are the same for both loans.

How Do I Qualify for PPP Loan Forgiveness?

In order to qualify for full PPP loan forgiveness, you must spend a minimum of 60% of your funds on payroll. The remaining 40% can be spent on non-payroll eligible expenses.

Payroll Costs (60% of loan amount):

  • Salary, wages, commissions, bonuses, and tips (Note: you cannot include any compensation in excess of $100,000 per employee.)
  • Payment for retirement benefits
  • Allowance for dismissal or separation
  • Payment for time off for vacation, family leave, and medical leave
  • Payment of state and local tax associated with the compensation of employees.
  • Costs for group healthcare benefits such as vision, dental insurance, or disability

Non-Payroll Eligible Expenses (40% of loan amount):

  • Rent
  • Utilities
  • Operating costs including cloud computing, human resources, or inventory management
  • Mortgage interest
  • Covered supplier costs
  • Property damage costs due to looting or vandalism during the events of 2020
  • PPE expenditures to protect employees

What If I Don’t Qualify to Have My PPP Loan Forgiven?

In the new stimulus package that was passed, a stipulation was included that states that those businesses that did not receive forgiveness of their PPP loans can now claim a tax credit. We recommend consulting with your accountant for more information.

What Documents Will I Need to Provide?

In addition to the loan forgiveness application, you’ll need to provide certain documentation as proof of how your PPP funds were spent.

For Payroll Expenses You May Need:

  • Bank account statements
  • Third-party payroll service provider reports showing the amount paid to employees
  • Tax forms
  • Any documentation that shows the amount of employer contributions to employee health insurance and retirement plans if you’ve included these in your PPP loan calculations

For Non-Payroll Expenses You May Need:

  • Proof of business mortgage interest payments
  • Proof of rent or lease payments
  • Proof of utility payments
  • Receipts for covered expenses such as PPE expenditures for employees or supplier costs

How Do I Submit My Forgiveness Application?

Contact your lender directly to verify which forgiveness application form you need to fill out. Your lender will guide you through the process and help you figure out which documents you need to provide along with the forgiveness application.

Still Have Questions?

We’ve got answers! Our COVID-19 Resource Center has up-to-date information and helpful tips for business owners like this guide to PPP FAQs,  this PPP Application Checklist, and our PPP Loan Calculator. For more information about how to apply for a PPP loan, click here or call us at (844) 284 – 2725.

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