May 07, 2020

PPP Forgiveness–What Do I Need to Do to Get My Loan Forgiven?

So, you hustled and assembled your payroll information, called a bunch of banks for help, applied for PPP and (finally!) were awarded a loan that has been beamed into your company’s bank account.  Great news!  So now what?  How do you use the funds in such a way as to get the maximum amount forgiven?

The keys to maximizing forgiveness are:

  • being mindful of the 8-week window during which loan funds that you spend on eligible expenses may be forgivable

  • making sure that at least 75% of the amount of loan funds that you spend during the 8-week period are spent on payroll costs and the remaining 25% are spent on other eligible expenses

  • making sure there is no reduction in FTE headcount levels on June 30, 2020 from the FTE headcount of February 15, 2020 (or pre-defined period chosen by the borrower)

  • making sure there is no greater decrease than 25% in any employee’s wages on June 30, 2020 compared to the payroll of February 15, 2020 (or pre-defined period chosen by the borrower)

The bank that issued your loan will control your firm’s application for forgiveness. Note: you must apply for forgiveness, it’s not just granted. Each bank may do things a little differently.  Further guidance from the SBA and the Treasury continues to develop. However, there are things you can do right away to make some projections about your business’s potential forgiveness amount which can help you make staffing decisions and prepare the documentation you need to apply for forgiveness after June 30. Again, this is an evolving situation – there is a chance that policymakers will consider some adjustments but you need to prepare using current guidance.

Make Your Forgiveness Projections Now

In order to qualify for forgiveness, 75% of your expenditures made during the 8-week period must be spent on payroll costs. This includes salaries (up to $100,000 annual per person), state and local taxes (not Federal), retirement benefits and the employer share of health care costs. Up to 25% of proceeds can be used for eligible non personnel costs including rent, utilities and mortgage interest. You have 8 weeks from the day the PPP money hits your account to make these expenditures-  the clock starts the day the funds are disbursed into your account.   

The 8-week 75/25 split is the baseline for forgiveness. In addition, you must maintain your FTE headcount and not reduce any employee’s (that makes up to $100K) salary by more than 25%. If you are not able to meet these thresholds, the forgiveness will be reduced by a factor of the reductions. However, any reductions in wages or headcount that occurred between February 15, 2020 and April 26, 2020 can be ‘cured’ by June 30, 2020 to avoid a reduction in the loan forgiveness amount. So, if you return headcount and appropriate salary level to previous levels by June 30th, you can reinstate the forgiveness.

Paychex has an easy to use calculator to help you project how much of your loan will be forgiven here. 

Intuit has a comprehensive forgiveness calculator here.

The AICPA has an easy to understand document outlining the steps you need to take to ensure forgiveness here.

The US Chamber of Commerce has an additional simple guide here.


What if I can’t meet that 75% payroll target?  Or can’t hire everyone back by June 30?  Or want to use the money later on?

If you are unable to achieve the payroll and staffing targets your forgivable amount may be reduced. Play around with one of the above estimators to see how this will impact your business to help you make decisions. Additionally, you may not be able to spend all of the loan money within the 8-week period on eligible expenses or, it may not be the best use of these funds for your business. Any money left over, as well as any money spent during the 8 week period that is not eligible for forgiveness, rolls over into a loan. You will need to pay the loan back at 1% interest over the course of two years. Your first payment will be due six months after the loan is funded. While payment is deferred for six months, please note that interest will still accrue during this time. And, while the loan has a two year term, with a six month deferral period, you will actually be paying the loan back over 18 months. You may want to use a loan calculator like this one to get an idea of what your monthly payments would look like.

Set Documentation Aside As you Go Along

You are going to need to show payroll reports, cancelled checks, leases and other proof of payments to apply for forgiveness–set them aside as you pay your bills.  Track the expenses you are using the funds for–consider opening a separate bank account that holds your PPP funds and use it to pay for eligible expenses. Your accountant can help you establish a system of record keeping that works for your operation.  Talk to them now to set up a routine for making and tracking eligible payments.

Things Keep Changing

The only thing certain about the PPP program is uncertainty.  Treasury has not finalized all forgiveness guidance–keep checking here to see updated guidelines as they are developed.