PPP Loan Forgiveness Application & Instructions

On March 27, 2020, the United States Congress approved a coronavirus relief bill called the CARES Act that created the Paycheck Protection Program (PPP) to provide forgivable loans to small businesses so they could pay their employees during the pandemic. PPP loans are intended to provide 8 weeks of cash to cover payroll, rent, utilities, and mortgage interest.

If your business receives a loan from the Paycheck Protection Program, you will not have to pay the loan back if certain requirements are met. To get your PPP loan forgiven, you must spend at least 75% of the loan on payroll for employees (salary/wages, health insurance, retirement, paid leave, and unemployment taxes) and no more than 25% of the loan on rent, utilities (including phone and internet bills), and mortgage interest. To determine the amount of loan forgiveness, your bank will look at the 8-week period starting the day you get the loan and add up what you paid in payroll to employees (including benefits), rent, utilities, and interest on mortgages during those 8 weeks. That amount is what is eligible for forgiveness. Any amount of your PPP loan that is not forgiven will be converted to a 2-year loan with a 1% interest rate.

Because the forgiveness rules are strict, Congress is currently considering the Paycheck Protection Flexibility Act, which would change the forgiveness rules to make it easier for small businesses to get their PPP loans forgiven. The bill would allow forgiveness for expenses beyond the 8-week loan period; eliminate the requirement that 75% of the PPP loan be spent on payroll; extend the deadline for employers to rehire employees; allow businesses with PPP loan to defer some payroll taxes; and extend the PPP loan term beyond 2 years. As of the date of this e-alert, this bill has not become law, so these changes are not effective.

Until these changes are approved, businesses looking to get their PPP loan forgiven must follow the current rules from Small Business Administration (SBA) which were released on May 15, 2020. The SBA’s loan forgiveness application and instructions can be found here. More details and examples can be found in the SBA’s rules on forgiveness here.

While the forgiveness application is complicated, it does provide some important clarifications for businesses:

You can start your 8-week period on the first day of the pay period after getting the loan if your payroll schedule is biweekly or more frequently.

Because the date you get your PPP loan may not line up with the date you pay payroll to your employees, you can choose to start your 8-week period on the first day of the first payroll cycle after you get the loan instead of starting your 8-week period on the day you get the PPP loan. This option is only available to businesses whose payroll schedule is biweekly (every 2 weeks for 26 paychecks per year) or more frequently. If your payroll cycle is semi-monthly (i.e., on the 15^th and last day of each month for 24 paychecks per year), you are not eligible for this alternative 8-week period.

Example: You get your PPP loan on June 1^st, making your 8-week period June 1 through July 26. The first day of your next payroll cycle after getting your loan is June 7^th. You can choose to start your 8-week period on June 7 rather than June 1 and have it end 8 weeks later on August 1^st. Any payroll paid or incurred during this new 8-week period is eligible for forgiveness (see below for an explanation of incurred payroll).
Expenses incurred but not paid until after the 8-week period are eligible for for
Published: 06/01/2020

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