What expenses are forgivable for a PPP loan?

In this 2-minute read:

  • PPP loan expenses that can be forgiven
  • What can cause loan forgiveness to be reduced?
  • How do I apply for PPP loan forgiveness

As you are receiving your loan from the Paycheck Protection Program or preparing to do so, it’s a good idea to be familiar with what expenses you can and should use your PPP loan for in order to receive any amount of forgiveness on your loan.

IMPORTANT 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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What expenses are authorized under a Paycheck Protection Program loan? Can all business expenses be forgiven?

Since the intent of the Paycheck Protection Program is to stimulate the American economy and save American jobs and businesses, there’s a huge upside to PPP loans: It is possible to have your full PPP loan completely forgiven. In other words, if you follow the rules and document your expenses properly, you won’t have to pay it back. Ever.

But you do have to apply for PPP loan forgiveness, and there are specific items that you need to use these funds on in order to receive that forgiveness. 

The first thing to know is that you must use at least 75% (now 60%) of your loan funds towards maintaining payroll expenses in order to receive forgiveness of your loan. 

IMPORTANT UPDATE: On June 5, 2020, the President Trump passed updates to PPP loan forgiveness requirements, extending the covered period to 24 weeks, and reducing the minimum loan funding that must be spent on payroll to 60%. Please read the details here.

Approved payroll expenses accepted for PPP loan forgiveness include:

  • Wages, including tips and commissions
  • Paid time off for vacation or sick leave
  • FMLA
  • Severance payments
  • Group healthcare benefits
  • Retirement benefits
  • State or local tax
  • Certain sole proprietor and independent contractor compensation

You may also use the other portion of your PPP loan to cover approved, legitimate business expenses such as commercial rent, mortgage payments, and utilities and receive loan forgiveness as long as the required percentage is used toward the above-mentioned payroll costs. 

If you need to use your PPP funding for other business expenses, you can. But just be aware that they may not qualify as forgivable expenses and you’ll have to pay back that portion of your loan under the terms of the PPP agreement.

What can cause a reduction in my PPP loan forgiveness amount?

If you use your PPP loan for anything other than the costs mentioned above, you won’t receive full loan forgiveness. But since it’s a 1% loan and you have 2 years (or 5 years) to pay back any unforgivable expenses and interest, that may be worth it to many businesses. You can still apply for forgiveness of any portion of your loan that you spent on authorized PPP forgiveness expenses.

Other things that can cause your PPP loan forgiveness to be reduced include:

  • Not maintaining your employee headcount (letting employees go after February 15, 2020)
  • Not maintaining employee salary and wage levels (these can’t fall more than 25%)

If you have lowered employee wages or laid off any employees between February 15, 2020 and April 26, 2020, you can still correct this in order to receive your loan forgiveness. You just need to restore employee headcounts and wage levels by December 31, 2020 (see “important update” above). 

NEW PPP FORGIVENESS UPDATE AS OF JUNE 17, 2020

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.

More helpful resources for PPP loan forgiveness:

Still need to apply for the Paycheck Protection Program loan?

If you haven’t applied for the PPP loan, you still can. However we recommend doing so soon because of the high demand for this loan. It’s likely the second round of funding will quickly run out and, though we expect there will likely be a third round, nothing is certain.

If you haven’t applied for your PPP loan and you determine it’s right for you, there is still time. Talk to your lender and get your application submitted ASAP.

Sign up for your Womply Free account and we’ll keep you updated on new funding opportunities. Customer relationships thrive when local businesses and consumers are connected through Womply data and technology.

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