Understanding The PPP Loan & Forgiveness Options

The Paycheck Protection Program – otherwise known as the “PPP” – was instated on June 5, 2020, and was designed as a loan for small business owners to use as a direct incentive to keep their employees on payroll.

Because of a rise in furloughs due to COVID-19 concerns, the federal government wanted a way for workers to continue receiving a paycheck without putting small businesses, well, out of business. The SBA then stepped in and offered to forgive a good portion of the loan – provided it was used for designated purposes, such as payroll, rent, and utilities.

If you’re a small business owner, you’re likely already aware of the presence of this loan, if you haven’t already applied for it. At this point, you may be wondering how much of your loan will be forgiven. There are, of course, several conditions a small business must meet if they want to qualify for forgiveness of the full amount.

There are lots of factors that may reduce the amount you’re eligible to be forgiven, and you’ll want to gather together any paperwork and written statements before submitting an application. Read on to find out more about loan forgiveness conditions, a timeline, and factors that may reduce the amount you’re eligible for.

Loan Forgiveness Conditions

There are a few conditions you, as a small business owner, must meet before you can receive forgiveness for the maximum amount allotted. First, you must use the funds you receive only for payroll, rent, mortgage, and utilities (independent contractors do not count as employees).

Second, these must be split in a specific way.

No more than 40% of the loan can be spend on anything other than payroll, while the remaining 60% must be spent on payroll activities. Additionally, employees’ original salaries prior to COVID-19 may not be reduced by more than 75%.

Business owners must also maintain the same level of employee retention that they had prior to COVID. If employees were furloughed due to concerns surrounding the pandemic, they must be offered, in writing, their job back. Otherwise, your forgiveness amount will be adjusted accordingly.

Also, if an employee rejects the offer – also in writing – or if they were fired for a just cause or willingly resigned, they may be excluded from the headcount. If you are self-employed or do freelance work, and your job revenue has been impacted by COVID-19, the SBA is even more lenient. They have been forgiving loan amounts over $20,000 regardless of how the funds were used.

Understanding Loan Forgiveness

The SBA has been known to be very generous in terms of loan forgiveness, provided you used the funds for appropriate resources and kept accurate records of all transactions. As previously stated, the amount forgiven will be reduced based on headcount of lost employees, funds used for outside purposes, and reduction of pay by more than 75%.

First, you are allowed to apply for forgiveness on expenses paid from the loan on or before the end of the year (December 31st). You also have twenty-four weeks from the day you send out the first round of payroll checks, so if you started this process more than twenty-four weeks before the end of the year, you will only be eligible for twenty-four weeks of loan forgiveness.

If you started this process in fewer than twenty-four weeks before the end of the year, you will still only have until December 31st, and it will not be extended, so you’ll need to spend all of it before then if you want it to be forgiven.

You will also need a significant amount of paperwork. You’ll need any written statements from employees rejecting job offers; receipts and documentation for everything you spent the money on; as well as evidence of payroll costs, headcount, and rent payments in the months prior to enaction of the PPP.

Your lender will help to guide you in the process of filling out the proper paperwork to be eligible for forgiveness, as well as directing you when.

Loan Forgiveness Timeline

The loan forgiveness timeline moves as follows:

1. Your loan disbursement begins either the day it’s deposited into your account, or the day your first payroll checks roll out, and the forgiveness period will last for 24 weeks or until the end of the year (If you received your loan prior to June 5th, you will only have 8 weeks).

2. You will have 10 months after the end of the 24 week period before you will need to begin making payments. This is known as the deferral period.

3. When you are ready, apply for forgiveness (this can be done at any time in the process). Consult your lender as to what paperwork you will need to file and all documents you will need to have prepared. You can do this during the 24 week period, immediately after, or at any point during the deferral period.

4. Once you apply for loan forgiveness, your lender will have 60 days to review your application and send it back as either accepted for the full amount, denied, or approved for a partial amount.

5. Your lender will send everything to the SBA, who will then have up to 90 days to accept or reject your lender’s decision, or contact you for more information and documents.

6. If you disagree with either your lender’s or the SBA’s decision, you can request your application to be reviewed again, and you may also request an appeal. Otherwise, you will have until the end of the deferral period before you will need to begin making payments, and afterward, you will make monthly payments on either the full amount or the reduced amount (depending on the decision made by the SBA).


To conclude, in order to be eligible for PPP loan forgiveness, you should have been spending your loan on payroll, rent, utilities, mortgage, and transportation, with no more than 40% being spent on anything other than payroll. Additionally, you need to assemble all appropriate documentation of expenditures and employee rejections of re-employment.

The SBA has been very generous up to this point, and will likely continue to be, as long as you follow all guidelines.