What happens if my PPP loan is not forgiven? Repayment terms and next steps

In this 6-minute read:

  • Requirements to receive full PPP loan forgiveness
  • Applying for PPP loan forgiveness
  • Under what circumstances will businesses have to repay their full or partial PPP loan?
  • What should your next steps be if your PPP loan isn’t fully forgiven?
  • What are the repayment terms of the PPP loan?
  • Additional PPP loan resources

As businesses are finished spending their PPP loans, they can begin the forgiveness application process in order to receive full loan forgiveness and not have to worry about paying this loan back. 

Not all businesses will receive full loan forgiveness, though. So what happens if your PPP loan is not fully forgiven? What should your next steps be?

Gig workers, freelancers, sole proprietors, independent contractors, self-employed individuals and more are eligible for PPP loans. Check your eligibility with Womply in as little as 5 minutes, and you could receive up to $50,000 in forgivable PPP loans!

Requirements to receive full PPP loan forgiveness

First, it helps to understand what the PPP loan requirements are in order to receive full loan forgiveness. This will help you spend your funds appropriately (if you haven’t spent them all yet) and prepare your business for the best outcome. 

The three basic requirements for spending your PPP loan if you wish to receive full loan forgiveness are as follows:

  1. You must maintain your employee counts and their compensation levels (there are certain exceptions here, which we’ll get to later)
  2. You must spend at least 60% of your loan proceeds on payroll costs
  3. You must spent any funds outside of payroll costs on other eligible PPP expenses

These are the basic requirements of forgiveness for both first and second draw PPP loans. 

Applying for PPP loan forgiveness

Applying for PPP loan forgiveness is a crucial step in the process, because PPP loan forgiveness is not automatic. You must fill out a PPP forgiveness application, gather any necessary documentation to verify your expenditures, and turn that all in to your lender to process with the SBA. 

If you’re not sure what you need here, communicate with your PPP lender. They can help make sure you get the correct application and give you direction on what kind of documentation you’ll need to verify your spending. 

There are multiple PPP forgiveness applications, which you’ll fill out based on how much your loan was and some other specific requirements. 

If your PPP loan was $150,000 or less, you’ll need to fill out Form 3508S for your PPP forgiveness

If your PPP loan was over $150,000, there are two different forms that may apply to you. Form 3508EZ is a simplified application form for larger loans and it has some specific requirements that you must meet if you wish to fill it out. If you don’t meet the requirements for Form 3508EZ then you’ll need to fill out Form 3508, which just has some additional calculating to determine the maximum loan forgiveness you can receive. Read our guide for specific requirements and step-by-step instructions for Form 3508EZ and Form 3508

After you’ve turned in your PPP forgiveness application and your lender sends it to the SBA, the SBA will have up to 90 days to make a final decision. If your PPP loan is not fully forgiven, then you will need to repay back any portion that wasn’t forgiven. 

Under what circumstances will businesses have to repay their full or partial PPP loan?

Businesses will only have to pay back their PPP loans if they didn’t fulfill all of the requirements for loan forgiveness. The biggest reason businesses may need to pay back their loan (or at least a portion of it) is that they haven’t maintained their employee counts and compensation levels (and their loan terms and date of origination require these conditions). Though there are those other circumstances where the business owner didn’t spend their funds as directed by the SBA. 

Part of the forgiveness application will ask you how many employees you had at the time of your PPP loan application and how many employees you had at the time of your forgiveness application. If there are disparities here, that’s one instance that may require you to pay at least part of your PPP loan back (depending on when you received your loan and how much your loan amount was). To make sure that you’ve met this requirement, you’ll need to know the number of FTE (full-time equivalent) employees you had during each of these times. If you managed to keep your employees on staff, then you’ve maintained your “employee count.”

The other part of that is that you must maintain your employees’ compensation levels. In order to achieve this, you must be paying your employees no less than 75% of what their wages were prior to receiving the PPP loan. If you fall below that, then you may have to pay back at least part of your PPP loan.  

Important exceptions to the “maintaining employee count and compensation” rule

It’s understandable that employees may leave of their own accord or need to be let go for other reasons beyond budget cuts. Here are the exceptions:

  • If you received a PPP loan of $50,000 or less you are exempt from having to maintain your employee count and their compensation levels
  • If an employee quit, retired, or was fired (with just cause), or refused to be rehired when you offered, then you can still qualify for full loan forgiveness. You may be required to show verification of this should the circumstance arise
  • Businesses and eligible organizations and individuals that receive PPP loans after December 27th, 2020 are not required to “rehire” any employees in order to receive forgiveness. You will, however, need to maintain current payroll levels, according to the SBA directives mentioned above, during the forgiveness period. 

What should your next steps be if your PPP loan isn’t fully forgiven?

Some PPP loans will not be forgiven. If you receive the SBA’s final decision on your forgiveness application and it wasn’t fully forgiven, there are a couple of steps you can take. 

First, you may be able to appeal the SBA’s decision. You can only file for an appeal if the SBA has issued a loan review. If your lender determines that your loan can’t be fully forgiven, then you can request a review by the SBA (though this isn’t guaranteed to happen). Any loans of $2 million or more are automatically reviewed by the SBA, and even loans less than that may still be reviewed if the SBA determines the need to do so. 

If you are unable to appeal the SBA’s decision, then you’ll have to repay any portion of your loan that wasn’t forgiven.

What are the repayment terms of the PPP loan?

If you do end up having to pay back any portion of your PPP loan, then it will be good to understand the repayment terms. Those are as follows:

  • 1% interest rate
  • Maturity of 5 years, meaning that the full amount of the non-forgiven portion of the loan (including interest) is due in 5 years (or 2 years if you received your PPP loan early on in the program… see the terms of your loan for specifics)
  • You don’t need to start paying back your loan until you receive a decision on your forgiveness application or 10 months after the end of your covered loan period

Any portion of the loan that you need to pay back will be paid back through your lender. If you have further questions about repaying your loan, talk to your lender. 

Additional PPP loan resources

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