
Managing Money In A Crisis
Weekly tips sent straight to your inbox
Finder is committed to editorial independence. While we receive compensation when you click links to partners, they do not influence our content.
Updated . What changed?
The main draw of the SBA’s Paycheck Protection Program (PPP) is that you can get up to 100% of the loan forgiven. But how much you actually qualify for depends on what you spend the money on during those first 24 weeks after your loan is disbursed. And if you lay off staff or reduce salaries, you won’t get full forgiveness — no matter what costs you cover.
The second round of stimulus funding added to the list of expenses that are eligible for PPP loan forgiveness to include expenses related to the coronavirus outbreak and civil disturbances over the summer. Businesses that received loans under $150,000 don't need to submit an application or documents to receive forgiveness — though you need to submit a certification and keep your records for four years.
The SBA will release more rulings on PPP forgiveness in the coming weeks — and a new forgiveness application. We will continue to update this article as information becomes available.
You can qualify for full forgiveness if you meet these four criteria:
The SBA gives you two options for when those 24 weeks covered by forgiveness begin:
There are two main types of eligible expenses: payroll costs and operating costs. Payroll is generally the most important — the federal government recommends spending no more than 40% on operating costs to get full forgiveness.
You must have spent at least 60% of your loan on the following types of payroll expenses to qualify for full forgiveness forgiveness :
You can count the following types of expenses your business paid over the 24-week period — as long as the contract began before February 15, 2020:
There are a few situations when otherwise eligible costs might not qualify:
Previously, EIDL grants were deducted from the amount of forgiveness your business could qualify for. But with the passing of the second stimulus bill, businesses are no longer required to deduct any past or current EIDL grants from their PPP loan forgiveness application.
To qualify for forgiveness as an independent contractor or sole proprietor, you must spend your full loan on compensation, such as wages, income, commissions or net earnings. This is capped at $100,000 per employee.
You can count rent, mortgage interest and utility payments toward forgiveness as well. But they must be for spaces that are solely for business use — in other words, only what can be claimed as deductible on your taxes.
If your business laid off full-time employees or reduced salaries after February 15, 2020 and before April 26, 2020, you may not qualify for full forgiveness.
However, the SBA has a Salary Hourly Wage Reduction Safe Harbor, which means you can still qualify for full forgiveness if you restore salaries and rehire employees by June 30, 2020.
But you also must meet the Full-Time Equivalency (FTE) Reduction Safe Harbor, which means full-time employees must on average earn close to the same pay and same hours as they did on February 15, 2020.
Reducing staff won’t have an affect on your eligibility for full forgiveness if you have written proof that you made a good-faith offer to rehire a full-time employee and they rejected the offer.
Full-time employees who are no longer on payroll for reasons unrelated to the coronavirus outbreak also won’t affect your eligibility for forgiveness. This includes employees who were fired for a specific reason, quit or asked for reduced hours.
If you reduce your employees’ wages or salaries over 25%, you’ll lose that amount in loan forgiveness as well. This does not include salaries over $100,000 per employee.
On October 8, the SBA released updated guidelines for businesses that borrowed less than $50,000. Most notably, SBA Form 3508S does not require business owners to reduce the amount forgiven if they needed to do one of the following:
This provides added flexibility — and lessens the amount of paperwork — for business owners who may have been unable to rehire employees or reestablish wages by the original date set by the SBA.
You will need to submit the SBA Form 3508S to your lender. The SBA has provided instructions on how to fill out Form 3508S, but your lender may have additional instructions when you're ready to submit an application for PPP loan forgiveness. Business owners are also no longer required to provide the calculations used to determine the eligible amount of PPP funding to be forgiven. However, the SBA may still request this information on a case-by-case basis.
Yes, Second Draw PPP loans are eligible for forgiveness. The second round of funding is subject to the same forgiveness rules as first draw loans. The main differences between First and Second Draw PPP loans are in eligibility requirements and application process — not forgiveness.
You can apply for forgiveness by filling out the PPP forgiveness application and submitting it to your lender. You can do so by following these steps:
While you can find a copy of the PPP forgiveness application on the SBA website, reach out to your lender first. All require the same information, but how you apply might differ. Some lenders might ask you to fill out the SBA’s application directly, while others might ask you to fill out an online form on their website.
While you don’t have to submit the Schedule A worksheet, you’re still required to have this it on record.
Enter the following information for all full-time employees who were employed during the forgiveness period and either made up to $100,000 in 2019 — or weren’t employed in 2019.
Once you fill out these rows, add up the totals for each column. Under Average FTE, also add up the total amount employee pay has been reduced that qualify for a full-time employee reduction exemption.
If your employee salaries or hours were reduced between February 15, 2020 and April 26, 2020 — and were restored by June 30, 2020 — follow these steps to calculate the salary/hourly wage reduction. If your employee earns an annual salary, use that when calculating pay. Otherwise, use the hourly wage.
For hourly workers: Multiply the average number of hours worked per week between January 1, 2020 and March 31, 2020 by the result in step 3. Then multiply your new result by 8. Enter that number in the Salary/Hourly Wage Reduction column.
For salaried workers: Multiply the number you calculated for step 3 by 8. Then divide your new result by 52. Enter this number in the Salary/Hourly Wage Reduction column.
For employees who earned more than $100,000 in 2019 and were employed during the covered period, follow the same steps to complete this table as you did for the first table — without the Salary/Hourly Wage Reduction column.
If step 1 or step 3 gives you a number that’s greater than or equal to step 2, you qualify for the FTE Reduction Safe Harbor and should enter the number 1.0 in line 13 when filling out PPP Schedule A.
Otherwise, fill out that line by dividing the number you enter in line 12 by the number you entered in line 11.
Use the information from your worksheet to complete the PPP Schedule A. You’ll need this information to calculate how much forgiveness your business can qualify for.
Follow the directions to fill out the PPP Loan Forgiveness Calculation Form. Use the information from your PPP application and PPP Schedule A, when applicable.
You have the option to fill out a form identifying your business ownership demographics by veteran status, gender, race or ethnicity. But you aren’t required to complete this section.
Have an authorized representative of your business read and initial next to each certification. Then, the representative must sign and date the certifications, and print their name and title.
Along with your forgiveness application, you’ll be asked to provide the following documents for the 24-week period that forgiveness covers:
Your lender may also require additional documentation, depending on the circumstance.
Your lender is required to give you a decision within 60 days of receiving your application. If you qualify, your loan is forgiven. Otherwise, you’re required to repay the loan over a two-year term at a 1% interest rate.
Any remaining balance after forgiveness turns into a loan with a two-year term. You still don’t have to make payments for the remainder of your six-month deferment period, but start as soon as you can. Interest accrues during deferment on these loans, so you’ll have higher monthly repayments if you defer your loan for the full six months.
In fact, consider paying it off early if you have the means to. Since there are no prepayment penalties, paying it off early can help you save on interest.
Maximize your chances of qualifying for full forgiveness with these pointers:
Currently there’s no deadline to apply for forgiveness, so when you apply for forgiveness is up to you. Some small business owners are waiting to see see what a new stimulus package might bring — some proposals would make it easier to qualify for more forgiveness or simplify the application.
But you might not want to wait too long. Your loan repayments kick in 10 months after your PPP loan covered period ends. Make sure you get your forgiveness application in before then.
Documenting your eligible expenses, rehiring staff and avoiding additional layoffs or cut wages can help ensure all of your Paycheck Protection Loan is forgiven. And if you need additional funding to help keep your business afloat as the economy slowly reopens, check out our guide to COVID-19 business loans for more options available.
Answers to commonly asked questions about PPP forgiveness.
The government counts federal taxes that employees would pay on wages toward forgiveness. But employer payroll taxes are not an eligible payroll cost.
No, any forgiven amount of a Paycheck Protection Loan is not taxable.
Yes. With the second stimulus package came clarification around how tax deductions. Specifically, it states that deductions won't be denied because the PPP isn't considered part of a business's gross income.
Finder.com received a PPP loan in May 2020.
Some PPP borrowers can get another round of funding through community lenders — though not all can qualify.
You only have until the end of March to get your next application in.
You might be able to apply for more funding on your PPP loan, get a second PPP loan or take advantage of a new grant program.
Find out who’s getting checks, unemployment benefits, student loan relief and more.
While the SBA is now processing PPP loan forgiveness applications, many lenders have yet to start working through their backlog.
Find out if your business can qualify for this simplified application form.
Self-employed borrowers need to follow a different process to get a PPP loan and apply for forgiveness.
A New York Times report found that businesses hadn’t received an SBA disaster loan over $150,000 since May.
Small businesses could have an easier time getting full forgiveness under the proposed legislation.
Small businesses may have gotten the highest number of loans — but most money went to big firms.