Yes, up to 100% of the loan amount may be forgiven. Any portion of the loan that is forgiven does not need to be repaid to the lender. Essentially, the forgiven portion of the loan converts into a grant. See FAQ number 3 for loan forgiveness requirements.
Loans are not forgiven automatically. When seeking forgiveness for a PPP loan, a business will need to apply for forgiveness with the lender servicing the loan. Borrowers seeking forgiveness will be required to provide documentation of how PPP funds were spent, the number of employees, and other information. See FAQ number 16 below for more details.
3. How do I determine which expenses are eligible for loan forgiveness?
While up to 100% of the loan is eligible for forgiveness, requirements must be met for the funds to qualify for forgiveness. First, only loan proceeds that are used for an eligible purpose under the program may be forgiven. Eligible purposes include payroll, payments of interest on mortgage obligations, rent, and utilities in place before February 15, 2020. Second, these expenses are only eligible if they were paid or incurred in the covered period (either the 8-week or 24-week period following disbursement of the loan).
Third, the forgiveness amount will be reduced for the following reasons: the percentage of loan proceeds spent on payroll is less than 60%, the employee count has decreased, or employees had their compensation reduced by more than 25%. See FAQ numbers 6, 7, and 8 below for exceptions and further details.
4. The amount of forgiveness of a PPP loan depends on the borrower’s payroll costs over a covered period; when does that covered period begin?
The covered period begins on the date the lender makes the first disbursement of the PPP loan to the borrower and lasts for 24 weeks. For example, if the borrower received its PPP loan proceeds on April 20, the first day of the period is April 20 and the last day is October 4. The length of the covered period was originally eight weeks, but was extended to 24 weeks by the Paycheck Protection Program Flexibility Act.
If a borrower received its loan approval before June 5, 2020, it has the option to elect the eight week period (instead of the 24 week period) as its covered period. Additionally, for payroll costs only, all borrowers have the option to use an “Alternative Payroll Covered Period” that begins on the first day of their first pay period following the first disbursement of the PPP loan proceeds.
A borrower can apply for forgiveness before the end of the covered period if the borrower has used all of its PPP funds. Even if a borrower applies early, the borrower must still use either eight weeks or 24 weeks as its covered period. The borrower cannot elect an interim covered period that only covers the weeks in which the borrower spent its funds. See FAQ number 14 for more information on applying early for forgiveness.
5. What steps could I take now to improve my chances of loan forgiveness?
6. If my business spent PPP loan proceeds on eligible expenses other than payroll, how does that impact the loan forgiveness amount?
According to the Paycheck Protection Program Flexibility Act, no more than 40% of the loan forgiveness amount can be for eligible expenses other than payroll (i.e. mortgage interest, rent, and/or utilities). The SBA and Treasury Department have indicated that if a borrower uses less than 60% of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60% of the loan forgiveness amount having been used for payroll costs.
7. If my business reduced its employee count how does that impact the loan forgiveness amount?
If a business has reduced its employee count (and is not eligible for one of the exceptions described in FAQ number 9), the loan forgiveness amount will be reduced proportionally. The sum total of expenses eligible for forgiveness will be multiplied by one of the following ratios to adjust the amount of loan forgiveness:
Average number of full-time equivalent employees per month for the covered period* after loan disbursement
Average number of full-time equivalent employees per month from 2/15/2019 to 6/30/2019
Average number of full-time equivalent employees per month for the covered period* after loan disbursement
Average number of full-time equivalent employees per month from 1/1/2020 to 2/29/2020
The average number of full-time equivalent employees is determined by calculating the average number of full-time equivalent employees for each pay period falling within a month. Seasonal employers (as determined by SBA guidelines) will be required to use the first ratio, but all other employers may use whichever ratio calculation they choose. This calculation can only decrease, not increase, the amount of loan forgiveness.
To maximize the amount of loan forgiveness, a business should hire or re-hire full-time employees during the covered period to ensure the ratio equals at least 100%. If a borrower is unable to rehire employees, it may be eligible for an exemption from the reduction in the forgiveness amount. See FAQ numbers 9 and 10 below for further details.
* The Paycheck Protection Flexibility Act extended the covered period from eight weeks to 24 weeks after the date of disbursement of the PPP loan. Alternatively, a borrower that received PPP loan approval before June 5, 2020 may elect for the covered period to end eight weeks after the date of disbursement of the PPP loan.
If the business reduced the salary for any eligible employees by more than 25% during the covered period following PPP loan disbursement, then that reduction will also reduce the amount of loan forgiveness. Eligible employees are those who did not receive an amount more than $100,000 at an annualized rate of pay in any single pay period in 2019 wages or salary. In almost all cases, the starting point to verify there was no reduction greater than 25% will be the employee’s salary from the first quarter of 2020.
For example, if an employee was compensated at a rate of $90,000 throughout 2019 and the first quarter of 2020, then that employee’s salary could not be reduced to less than an annualized rate of $67,500 (a 25% reduction) without also reducing the amount of loan forgiveness. If the same employee’s compensation was reduced to $60,000 throughout the covered period then the difference between the covered period worth of salary at the annualized rates of $67,500 and $60,000 would be subtracted from the loan forgiveness amount. If the borrower uses the 24-week covered period, then the calculation would be $67,500 x (24 / 52) = $31,154 and $60,000 x (24 / 52) = $27,692, and the difference between these amounts, $3,464, would be subtracted from the total loan amount forgiven.
See FAQ number 9 below for further details on reversing a reduction in employee compensation.
* The Paycheck Protection Flexibility Act extended the covered period from eight weeks to 24 weeks after the date of disbursement of the PPP loan. If a borrower received its loan approval before June 5, 2020, it has the option to elect the eight week period (instead of the 24 week period) as its covered period. Additionally, for payroll costs only, all borrowers have the option to use an “Alternative Payroll Covered Period” that begins on the first day of their first pay period following the first disbursement of the PPP loan proceeds. If the borrower elects the Alternative Payroll Covered Period, that period is used for the reduction calculations described in this FAQ.
Depending on the timing, a business may be able to avoid having its loan forgiveness amount reduced. There are three ways to avoid forgiveness reduction:
1) Rehire employees. Borrowers will not have their loan forgiveness amount reduced if the reduction in number of employees or in salary for eligible employees occurred between February 15, 2020 and April 26, 2020; and by no later than December 31, 2020, the reduction either in number of employees or in salary for eligible employees is eliminated. That is to say, the employer rehired the employee or a replacement and any reduction in salary of more than 25% is reversed so it does not exceed 25%.
2) A borrower will not have its loan forgiveness amount reduced if the borrower did not reduce the annual salary or hourly wages of any employee by more than 25% and can show that on or before December 31, 2020 it was unable to rehire individuals who were employees on February 15, 2020 and was unable to hire similarly qualified employees for unfilled positions.
3) A borrower will not have its loan forgiveness amount reduced if the borrower did not reduce the annual salary or hourly wages of any employee by more than 25% and if during the covered period the borrower’s business remained closed or was still unable to operate at normal levels of activity due to compliance with guidance issued by government health authorities around social distancing or any other work or customer safety requirement related to COVID-19.
No. Laid-off employees whom the borrower offered to rehire (for the same salary/wages and same number of hours) are excluded from the loan forgiveness reduction calculation. To qualify for this exception, the borrower must have made a good faith, written offer of rehire, and the employee’s rejection of that offer must be documented by the borrower. Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation. Borrowers are required to inform the applicable state unemployment insurance office of any employee’s rejected rehire offer within 30 days of the employee’s rejection of the offer.
If your EIDL loan was used for payroll costs, your PPP loan must be used to refinance your EIDL loan. Proceeds from any advance up to $10,000 on the EIDL loan will be deducted from the loan forgiveness amount on the PPP loan. However, at least 60% of the PPP loan proceeds shall be used for payroll costs. For purposes of determining the percentage of use of proceeds for payroll costs, the amount of any EIDL refinanced will be included. For purposes of loan forgiveness, however, the borrower will have to document the proceeds used for payroll costs in order to determine the amount of forgiveness.
12. How do I determine how much of the loan will be forgiven?
Calculating the loan forgiveness amount can be complicated and requires consideration of factors. To make it easier we have prepared a loan forgiveness calculator. These FAQs also provide details on calculation of loan forgiveness amounts.
13. What is considered payroll costs for the purpose of PPP loan forgiveness?
The definition of “payroll costs” for the Paycheck Protection Program includes the following:
Payroll costs, however, do not include the following expenses:
Payroll costs may be counted even if the payments were to furloughed employees.
See FAQ number 20 for questions regarding the two types of payroll costs on the forgiveness application (cash compensation and non-cash compensation) and how to calculate these costs for forgiveness purposes.
14. When can I seek loan forgiveness?
A borrower may submit a loan forgiveness application any time on or before the maturity date of the loan if the borrower has used all of the loan proceeds for which the borrower is requesting forgiveness. Borrowers do not need to wait to apply for forgiveness until the end of the covered period if all the loan proceeds have been used.
While the borrower has until the maturity date of the loan to apply for forgiveness, if the borrower does not apply for forgiveness within 10 months from the last day of the covered period (about 15 months from loan disbursement) then the borrower must begin paying principal and interest.
If a borrower applies for forgiveness before the end of the covered period, it does not change the borrower’s covered period (either eight weeks or 24 weeks). If the borrower applies for forgiveness before the end of the covered period and has reduced any employee’s salaries or wages in excess of 25 percent, the borrower must account for the excess salary reduction for the full eight-week or 24-week covered period.
See FAQ number 5 for steps to be taken to improve a borrower’s ability to achieve loan forgiveness.
15. How do I seek loan forgiveness?
When a business is ready to seek loan forgiveness, an authorized representative of the business should contact their loan servicer (likely the lender that originated the loan) to begin the loan forgiveness application process.
To receive loan forgiveness, a borrower must complete and submit the Loan Forgiveness Application (SBA Form 3508, 3508EZ, or lender equivalent) to its lender (or the lender servicing its loan).
If your lender is using the StreetShares Platform, the Loan Forgiveness Application may be submitted via an online forgiveness application hub. The authorized representative of the borrower should receive an email from your lender soon inviting you to login to the application hub.
16. What documentation will I need to provide in the application for loan forgiveness?
There are three broad categories of documentation that must be provided with your loan forgiveness application: payroll expenses, your full-time equivalent employee count, and non-payroll eligible expenses. There are also several documents that need to be maintained in addition to those that must be provided with the application. The documents that need to be provided or maintained are listed as follows in the loan forgiveness applications (SBA Form 3508 or 3508EZ).
Payroll Expenses during the Covered Period
You must submit the following documents showing your use of PPP funds for payroll expenses during the Covered Period (the eight-week or 24-week period after loan disbursement) or Alternative Payroll Covered Period (the eight-week or 24-week period after the first day of the first pay period after loan disbursement).
Bank statements or third-party service provider reports documenting compensation paid to employees
Payroll tax filings reported, or that will be reported, to the IRS (typically, Form 941)
State quarterly business and individual employee wage reporting and unemployment insurance tax filings reported, or that will be reported, to the relevant state
Payment receipts, canceled checks, or account statements documenting the amount of any employer contributions to employee health insurance and retirement plans
Additional Requirement for Certain EZ Form Users: the average number of full-time equivalent employees on payroll employed by the borrower on January 1, 2020 and at the end of the Covered Period or Alternative Payroll Covered Period.
Full-time Equivalent (FTE) Employee Count before COVID-19
(Not Required for EZ Form users)
You must submit the following documents showing your FTE employee count prior to the COVID-19 crisis. You may elect to provide documentation for one of the following periods: February 15, 2019 to June 30, 2019; or January 1, 2020 to February 29, 2020. If you are a seasonal employer, you may elect one of the foregoing periods or any consecutive 12-week period between May 1, 2019 and September 15, 2019.
Payroll tax filings reported, or that will be reported, to the IRS (typically, Form 941)
State quarterly business and individual employee wage reporting and unemployment insurance tax filings reported, or that will be reported, to the relevant state. non-payroll eligible expenses.
Non-Payroll Eligible Expenses
You must submit the following documents verifying the existence of debt/services prior to February 15, 2020 and showing your use of PPP funds for eligible payments during the Covered Period (the eight-week or 24-week period after loan disbursement).
Business mortgage interest payments: Copy of lender amortization schedule and receipts or canceled checks verifying payments; or lender account statements from February 2020 and the months of the Covered Period through one month after the end of the Covered Period verifying interest amounts and payments
Business rent or lease payments: Copy of current lease agreement and receipts or canceled checks verifying payments from the Covered Period; or lessor account statements from February 2020 and from the Covered Period through one month after the end of the Covered Period period verifying payments
Business utility payments: Copy of invoices from February 2020 and those paid during the Covered Period and receipts, canceled checks, or account statements verifying those payments
Documents to Be Maintained but Not Submitted with Application
There are also documents that do not need to be provided with the forgiveness application but must be maintained for six years and provided to the SBA or your lender upon request. The following documents must be maintained depending on whether you complete the full forgiveness application or the EZ Form forgiveness application.
Both Application Types (SBA Form 3508 or 3508EZ)
Documentation regarding any employee job offers and refusals, firings for cause, voluntary resignations, and written requests by any employee for reductions in work schedule, and any inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020 .
Documentation supporting the certification, if applicable, that your business was unable to operate between February 15, 2020, and the end of the Covered Period at the same level of business activity as before February 15, 2020 due to compliance with requirements established or guidance issued between March 1, 2020 and December 31, 2020 by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to the maintenance of standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19. This documentation must include copies of the applicable requirements for each borrower location and relevant borrower financial records.
All records relating to the borrower’s PPP loan, including documentation submitted with its PPP loan application, documentation supporting the borrower’s certifications as to the necessity of the loan request and its eligibility for a PPP loan, documentation necessary to support the borrower’s loan forgiveness application, and documentation demonstrating the borrower’s material compliance with PPP requirements.
Full Forgiveness Application (SBA Form 3508)
PPP Schedule A Worksheet or its equivalent
Documentation supporting the listing of each individual employee in PPP Schedule A Worksheet Table 1, including the “Salary/Hourly Wage Reduction” calculation, if necessary.
Documentation supporting the listing of each individual employee in PPP Schedule A Worksheet Table 2; specifically, that each listed employee received during any single pay period in 2019 compensation at an annualized rate of more than $100,000.
Documentation supporting the PPP Schedule A Worksheet “FTE Reduction Safe Harbor 2.”
EZ Forgiveness Application (SBA Form 3508EZ)
Documentation supporting the certification that annual salaries or hourly wages were not reduced by more than 25 percent during the Covered Period relative to the period between January 1, 2020 and March 31, 2020. This documentation must include payroll records that separately list each employee and show the amounts paid to each employee during the period between January 1, 2020 and March 31, 2020, and the amounts paid to each employee during the Covered Period or Alternative Covered Period.
Documentation supporting the certification, if applicable, that the borrower did not reduce the number of employees or the average paid hours of employees between January 1, 2020 and the end of the Covered Period (other than any reductions that arose from an inability to rehire individuals who were employees on February 15, 2020, if the borrower was unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020). This documentation must include payroll records that separately list each employee and show the amounts paid to each employee between January 1, 2020 and the end of the Covered Period.
17. I have part-time employees. How do I calculate the number of full-time equivalents?
For each employee, enter the average number of hours paid per week, divide by 40, and round the total to the nearest tenth. The maximum for each employee is capped at 1.0.
A borrower may elect a simplified method: assign a 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work fewer hours.
This calculation will be used to determine whether the borrower’s loan forgiveness amount must be reduced due to reductions in full-time equivalent employees.
18. Are there caps on the amount of loan forgiveness available for employee's or owner's payroll compensation?
Yes, the amount of loan forgiveness requested for each individual’s payroll compensation is capped. There are different caps for employees and owner-employees (including self-employed individuals).
For employees who are not owners, each employee’s payroll compensation eligible for forgiveness is capped at the employee’s annualized pay (up to $100,000) as prorated for the covered period (for 24 weeks, a maximum of $46,154 per individual, or for eight weeks, a maximum of $15,385 per individual), as well as covered benefits for employees (but not owners), including health care expenses, retirement contributions, and state taxes imposed on employee payroll paid by the employer (such as unemployment insurance premiums).
The payroll compensation for owner-employees and self-employed individuals using a 24-week Covered Period is capped at $20,833 (the 2.5-month equivalent of $100,000 per year) for each individual or the 2.5 month equivalent of their applicable compensation in 2019, whichever is lower.
For borrowers using an 8-week Covered Period, the payroll compensation for owner-employees and self-employed individuals is capped at $15,385 (the eight-week equivalent of $100,000 per year) for each individual or the eight-week equivalent of their applicable compensation in 2019, whichever is lower.
In particular, owner-employees are capped by the amount of their 2019 employee cash compensation and employer retirement and health care contributions made on their behalf. Schedule C filers are capped by the amount of their owner compensation replacement, calculated based on 2019 net profit. General partners are capped by the amount of their 2019 net earnings from self-employment (reduced by claimed section 179 expense deduction, unreimbursed partnership expenses, and depletion from oil and gas properties) multiplied by 0.9235. No additional forgiveness is provided for retirement or health insurance contributions for self-employed individuals, including Schedule C filers and general partners, as such expenses are paid out of their net self-employment income.
19. What is SBA Form 3508EZ? Am I eligible to apply using the EZ form?
The SBA released a simplified version of the forgiveness application that can be used by certain borrowers. Borrowers can use the new EZ form if they meet any of the following criteria:
Self-employed borrower and they have no employees;
Did not reduce the wages of their employees by more than 25%, and did not reduce the number or hours of their employees; or
Experienced reductions in business activity as a result of federal health directives related to COVID-19, and did not reduce the salaries or wages of their employees by more than 25%.
20. What is considered cash compensation and non-cash compensation for the forgiveness application SBA Form 3508 or 3508EZ? How are they calculated?
The forgiveness application separates payroll costs into two parts: (1) cash compensation; and (2) non-cash compensation.
Cash compensation is defined as gross salary, gross wages, gross tips, gross commissions, paid leave (vacation, family, medical or sick leave, not including leave covered by the Families First Coronavirus Response Act), and allowances for dismissal or separation paid or incurred during the covered period.
Non-cash compensation includes employer contributions for employee health insurance and employee retirement plans and employer payments for state and local taxes assessed on employee compensation.
Payroll costs are calculated on a gross basis without regard to (i.e., not including subtractions or additions based on) federal taxes imposed or withheld, such as the employee’s and employer’s share of Federal Insurance Contributions Act (FICA) and income taxes required to be withheld from employees. As a result, payroll costs are not reduced by taxes imposed on an employee and required to be withheld by the employer, but payroll costs do not include the employer’s share of payroll tax. For example, an employee who earned $4,000 per month in gross wages, from which $500 in federal taxes was withheld, would count as $4,000 in payroll costs. The employee would receive $3,500, and $500 would be paid to the federal government. However, the employer-side federal payroll taxes imposed on the $4,000 in wages are excluded from payroll costs under the statute.
21. What utilities are eligible for forgiveness?
For PPP forgiveness purposes, a covered utility payment includes payment
for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020.