Do I have to pay back my PPP loan? Here’s how to get your loan forgiven

In this 4-minute read:

  • Can all Paycheck Protection Program loans be forgiven?
  • What can cause PPP loans to not be forgiven?
  • What if my PPP loan isn’t fully forgiven?

This global COVID-19 pandemic has a lot of business owners concerned about the future of their businesses and how they will keep their employees paid. With state-wide shutdowns and the general public being advised to stay home, businesses are starting to suffer. 

Recently, the federal government signed into law the $2 trillion CARES Act, which will provide financial assistance for individuals, families, and businesses during this trying time. 


The Treasury released a new IFR and an “easy” version of the PPP loan forgiveness application on June 17, 2020. Please read the full details here.

Here’s how borrowers decide which forgiveness application to use. You may use Form 3508EZ if:

  • You are self-employed and have no employees; OR
  • You did not reduce the salaries or wages of employees by more than 25%, and did not reduce the number or hours of employees; OR
  • You experienced reductions in business activity as a result of health directives related to COVID-19, and did not reduce the salaries or wages of employees by more than 25%.

If you don’t fit into any of the above conditions, you will need to complete and submit the full PPP loan forgiveness application.

IMPORTANT UPDATE: On June 5, 2020, President Trump signed into law new updates to PPP loan forgiveness requirements, extending the covered period to 24 weeks, reducing the minimum loan funding that must be spent on payroll to 60%, and easing the requirements for maintaining staffing and compensation levels. Please read the details here.

NOTE: On Wednesday, May 13, 2020, the SBA released revisions to their FAQs regarding PPP loan forgiveness. Read the details here

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Under the CARES Act, the Paycheck Protection Program (PPP) authorizes up to $349 billion in forgivable loans to small business owners. Each business can apply for a PPP loan of 2.5 times their average monthly payroll expense, so long as that does not exceed $10 million per business. 

One more important fact about these PPP loans: all loan terms will be the same for everyone. Same rates, same deferment options, same conditions for loan forgiveness. 

Can my Paycheck Protection Loan be forgiven? If so, how?

The question that most business owners are asking right now with this new COVID-19 financial assistance: how can these loans be forgiven?

It’s understandable that you wouldn’t want to go into debt during this time, especially with the uncertainty of the future as the pandemic progresses. Fortunately, since the intent of this bill is to save American jobs and businesses, there’s a huge motivation built into the provisions of the loan program for businesses: If you keep (or re-hire to meet) your pre-COVID-19 levels of employment and compensation and spend the funds on approved expenses, your PPP loan will be forgiven, meaning you don’t have to pay it back…ever!

Womply has partnered with various trusted lenders to offer you the best possible rates on small business funding. Whether you need a term loan, a line of credit, or another type of small business capital, we can help! Click here to learn more.

There are two important conditions for PPP loans to be forgiven:

  1. Proceeds of the loan must be used to cover payroll costs, mortgage interest, rent, and utilities over the next 8 weeks after the loan funding has been received (note: the covered period has been extended to 24 weeks for loans made after June 5, 2020. Borrowers with loans issued prior to that date will have the option to extend their covered period to 24 weeks or maintain it at the previous 8-weeks. See “important update” above.) 
  2. Employee headcount and compensation levels must be maintained* 

This means that the majority of your loan must be used to keep your staff employed if you want your loan to be forgiven. Ideally, this loan forgiveness plan will help keep unemployment rates down, and help individuals keep their jobs and support their families. 

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60% (previously 75%; see “important update” above) of the PPP funding must be used to cover payroll costs

Also note that the interest that accrues (at an amazingly low 1% rate, but still…) is NOT forgivable.

What can cause all or part of my PPP loan to not be forgiven?

The only way you will have to pay back all or part of a PPP loan is if you don’t use it for the specific items outlined above. You CAN use your funding for any legitimate business expense, but if you use your loan for anything other than PPP-approved payroll costs, mortgage, rent, and utilities, expect to pay back at least that portion of your loan. 

Initially, no more than 25% of the forgiven amount could be used to cover non-payroll costs if you wanted your PPP loan completely forgiven. That has been changed to 40% as of June 5, 2020. (60% of PPP funds must be spent on payroll costs to maintain full loan forgiveness.)

And a 1% interest rate is amazing, but even with an almost-free interest rate, a 2-year loan maturity date (now 5 years) can be tough to meet, especially if you’re still reeling from the impacts of the COVID-19 crisis.

So it would be far better if you used your PPP loan for its intended use, on approved expenses, and got it forgiven.

Read more: 

You will owe money on your loan if you don’t maintain your staff and payroll. The following are ways that you will have your loan forgiveness reduced:

  • If you decrease the number of full-time employees you have
  • If you decrease salaries or wages by more than 25% for any employees that made less than $100,000 in 2019

With that being said, you can rehire your employees to restore any staff reductions you might have made and meet the PPP loan forgiveness requirements. 

*If you’ve already had to reduce your staff or cut compensation due to COVID-19, you can still make things right.

You have until December 31, 2020 to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020. 

How do I request forgiveness of my Paycheck Protection Program loan? 

You need to submit a request to the lender that is servicing your PPP loan. The request will include documents that verify the number of full-time equivalent employees and pay rates, as well as the payments on eligible mortgage, lease, and utility expenses. 

You must certify that the documents are true and that you used the forgiveness amount to maintain employee headcount/compensation levels and to make eligible mortgage interest, rent, and utility payments for the 8 weeks after you receive your loan. The lender must make a decision on the forgiveness within 60 days of your request. 

What if my loan isn’t able to be completely forgiven?

In the case that you don’t meet all requirements for complete loan forgiveness, you’ll have specific terms to pay back the required portion of the loan, and these terms are the same for every business. 

PPP loan terms:

  • 1% interest rate
  • Maturity of 2 years (meaning the full amount of non-forgiven principal and any interest is due in 5 years [previously 2 years])
  • 6-month deferment (you don’t have to start paying back the loan for 6 months—however, interest still accrues during this period) Note: as of June 5, 2020, payments are deferred until you receive approval from the SBA on your application for loan forgiveness, or 10 months after the end of your covered period. See “important update” above)
  • 100% guarantee by the SBA
  • No collateral is required
  • No borrower or lender fees need to be paid to the SBA
  • No personal guarantees

Womply can help you get the small business funding that’s right for you

Womply has partnered with various trusted lenders to offer you the best possible rates on small business funding. Whether you need a term loan, a line of credit, or another type of small business capital, we can help!

Click here to check out our small business loans resources, or schedule a free, personalized demo of Womply’s small business apps to learn more!


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