Preparing for Forgiveness

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What are the conditions that I need to maintain to receive PPP loan forgiveness?

In order to receive full loan forgiveness, you must use at least 60% of your loan to cover payroll costs for employees (this includes compensation for owners, partners, etc.). The remaining 40% should be used on other approved costs, such as rent, utilities, and operations costs, etc. See our FAQ about PPP loan forgiveness for more details. 


Beyond ensuring that you are spending your loan on the approved costs for the PPP loan, you must also maintain your employment and compensation levels (with certain exceptions; see below)

What if I couldn’t keep my employees, they quit, or refused to be rehired? Can I still qualify for loan forgiveness?

There are certain exceptions to the “maintaining employees levels and compensation” rule.


If you received a PPP loan of $50,000 or less

If you received a PPP loan that was $50,000 or less, you are exempt from having to maintain your employee and compensation levels in order to receive loan forgiveness. Your loan must still be spent on approved costs and you will still need to document that you spent at least 60% of your funds on payroll expenses. 


When you’re ready to apply for loan forgiveness, you will want to contact your lender to receive the simplified loan forgiveness form. 


An employee quit, retired, or was fired (with just cause), or refused your offer to be rehired

If you couldn’t maintain employee levels due to someone quitting or being fired with just cause, then you can still qualify for full loan forgiveness. You can also get full loan forgiveness if you have written proof that you offered to rehire employees who refused your offer (if your offer was at their former pay). But, it’s very important that you document each of these instances so that you can verify this when you apply for loan forgiveness. 


You’ll need documentation to explain why your employee was fired or other supporting documents to verify an employee’s termination or refusal to be rehired.

I got my First Draw PPP Loan after December 27, 2020, do I still need to restore payroll or headcount to previous levels in order to receive forgiveness?

No. PPP Loans received 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 during the forgiveness period. (Exceptions to this would include employees who resign or are terminated with cause).

What are the approved expenses to achieve full PPP loan forgiveness?

The PPP loan program was designed to provide forgivable loans in order to encourage businesses to maintain payroll and stay open. However, you may spend your PPP funds on any legitimate business expense, and if you are unable to spend at least 60% on payroll costs, you will need to pay back at least a portion of your loan. 


As you receive your PPP loan and prepare for loan forgiveness, be sure that you are spending your loan only on approved costs (and at least 60% of that should be on payroll costs to reach full forgiveness). 


Approved costs include:

  • Payroll (this includes the money you pay yourself)
  • Costs related to group healthcare, life, disability, vision, or dental benefits
  • Mortgage interest payments
  • Rent payments
  • Utility payments
  • Interest payments on other debts incurred prior to February 15, 202
  • Refinancing and SBA EIDL loan made between January 31, 2020 and April 3, 2020
  • Covered operations expenses
    • Payments for software that helps with business operations
    • Product or service delivery
    • Processing, payment, or tracking of payroll costs
    • Sales and billing functions
    • Accounting
    • Tracking of supplies, inventory, records, and expenses
  • Property damage costs that occurred due to public disturbances in 2020 and were not covered by insurance
  • Costs for suppliers
    • Must be essential to business operations at the time which the expenditure is made
    • Is made in accordance with a contract, order, or purchase order that was in effect before the covered period or with respect to perishable goods
  • Covered worker protection costs
    • Operating costs to meeting DHHS, CDC, and OSHA guidelines for COVID-19. This may include:
      • Purchasing, maintaining, or renovating your space
        • A drive-through window facility
        • An indoor, outdoor, or combined air or air pressure ventilation or filtration system
        • Physical barriers such as a sneeze guards
        • An expansion of additional indoor, outdoor, or combined business space
        • An onsite or offsite health screening capability
        • Other assets relating to the compliance with the requirements or guidance as determined by the Administrator in consultation with the Secretary of Health and Human Services and the Secretary of Labor
      • Purchasing PPE (protective equipment)


It is important that you keep good records of all expenses that you cover with your PPP loan if you want to receive forgiveness on the loan. Keep receipts, invoices, and other documentation that you need in order to verify your expenses.

What counts as payroll costs for PPP loan forgiveness?

In order to receive full loan forgiveness, at least 60% of your loan must be used towards payroll costs. 


The Treasury Department outlines payroll costs as the following:

  • Compensation to employees (whose principal residence is in the United States) in the form of salary, wages, commissions, or similar compensation
  • Cash tips or the equivalents (based on employer records of past tips or good-faith employer estimate of such tips if there are no records)
  • Payments for vacation, parental, medical, family, or sick leave
  • Allowance for separation or dismissal (severance packages)
  • Payment for employee benefits like group health care or group life, disability, vision, or dental insurance (including premiums), and retirement
  • Payment of state and local taxes assessed on compensation of employees


For independent contractors or sole proprietors, payroll costs consist of:

  • Wages, commissions, income, or net earnings from self-employment, or similar compensation


Note from the Treasury Department: Payroll costs that are qualified wages taken into account in determining the Employer Retention Credit are not eligible for loan forgiveness.

What if I don’t use 60% of my PPP loan on payroll expenses? Can I still qualify for loan forgiveness?

If you don’t spend at least 60% of your loan on approved payroll costs, you can still qualify for partial loan forgiveness. But you will be ineligible for full loan forgiveness. 

How do I verify to my lender and the SBA that I spent my PPP loan on approved expenses? What documentation do I need?

You will need comprehensive documentation to accompany your loan forgiveness application in order to verify that you spent your loan on approved expenses.


This documentation may include:

  • Bank account statements or third-party payroll service provider reports
  • Tax forms for the covered period, or that overlap the covered period
  • Payment receipts, cancelled checks, or account statements
  • Business mortgage interest payments: copy of lender amortization schedule and receipts verifying payments
  • Business rent or lease payments: copy of current lease agreement and receipts or cancelled checks verifying payment
  • Business utility payments: Copies of invoices and receipts, cancelled checks, or account statements
  • Other invoices, receipts, account statements for covered costs


This list isn’t all-inclusive, so be sure that you have good documentation for each of the expenses that you used your loan for. Basically, if it’s a legitimate business expense, it’s likely allowed so be sure to keep track of receipts and records.

When can I apply for PPP loan forgiveness?

You can apply for PPP loan forgiveness as soon as all of your loan proceeds have been used, which at the earliest is the first day after your selected “covered period” (the 8-24 week period after your PPP loan is funded). 


However, you must apply for loan forgiveness within 10 months of the last day of your covered period in order to receive a deferment on your loan payments. If you wait longer, you’ll have to start making payments on the balance and deferred interest of your loan (unless your forgiveness application has been submitted within the deadline).

How do I apply for PPP loan forgiveness?

To apply for loan forgiveness, you’ll want to get together all of your documentation as outlined here and then contact your PPP lender. They will provide you with the correct loan forgiveness form to fill out for your application—either the SBA Form 3508, SBA Form 3508EZ, SBA Form 3508S, or a lender equivalent. (Forms 3508EZ and the 3508S are shortened versions of the application for borrowers who meet specific requirements.) Your lender can provide further guidance on which form you should use.


Submit the form and documentation to your PPP lender and continue to communicate with your lender throughout the loan forgiveness process. Your lender will notify you of the forgiveness amount that the SBA pays and if you will have any payments due on your loan. 

Which loan forgiveness application should sole proprietors, independent contractors, or self-employed individuals with no employees complete?

Sole proprietors, independent contractors, and self-employed individuals who had no employees at the time of the PPP loan application and did not include any employee salaries in the computation of average monthly payroll in the Borrower Application Form automatically qualify to use the Loan Forgiveness Application Form 3508EZ or lender equivalent and should complete that application.

Can I use scanned copies of documents, E-signatures, or Econsents when applying for loan forgiveness?

Yes. All PPP lenders may accept scanned copies of signed loan forgiveness applications and documents containing the information and certifications required by SBA Form 3508, 3508EZ, or lender equivalent. Lenders may accept any form of Econsent or E-signature that complies with the requirements of the Electronic Signatures in Global and National Commerce Act (P.L. 106-229).


As with all documents in the PPP process, it’s important to make sure that any documents you send to your lender are easy to read and are as high-quality as you can make them. This will make the process significantly faster and easier.


If electronic signatures are not feasible, then when obtaining a wet ink signature without in-person contact, lenders should take appropriate steps to ensure the proper party has executed the document. This guidance does not supersede signature requirements imposed by other applicable law, including by the lender’s primary federal regulator.


Be sure to provide good-quality copies of all your documents, and make sure they’re legible, properly filled out, and accurate.

If I submit my PPP loan forgiveness application within the deadline, do I have to make payments on the loan until the SBA approves my loan forgiveness?

Yes. If only a portion of your loan is forgiven, or if your forgiveness application is denied, then you must repay any remaining balance due on the loan and accrued interest on or before the maturity date of the loan (either 2 or 5 years after your loan is approved, depending on when you got your loan… 2021 loans have a 5 year maturity date). There is no prepayment penalty for paying your loan off early.


NOTE: Interest accrues during the time between the disbursement of the loan and SBA remittance of the forgiveness amount. If your loan is forgiven, you will not be responsible for that interest. However, you are responsible for paying the accrued interest on any amount of the loan that is not forgiven. Your lender is responsible for notifying you when the SBA remits the loan forgiveness amount (or when the SBA determines that no amount of the loan is eligible for forgiveness) and the date on which your first payment is due, if applicable.

My PPP loan forgiveness application form (3508, 3508EZ, and 3508S) has an expiration date of 10/31/2020 in the upper-right corner. Is October 31, 2020 the PPP loan forgiveness application deadline?

No. You can submit a PPP loan forgiveness application any time before the maturity date of the loan, which is either two or five years from loan origination. (Two years if you applied early in 2020, before the loan maturity date for PPP loans was extended to 5 years.)


However, if you don’t apply forgiveness within 10 months after the last day of the loan forgiveness covered period, loan payments are no longer deferred and the you will need to start making payments on the loan. For example, if your covered period ended on October 30, 2020, you have until August 30, 2021 to apply for forgiveness before you need to start repayment on your loan.


The expiration date in the upper-right corner of the posted PPP loan forgiveness application forms is displayed for purposes of the SBA’s compliance with the Paperwork Reduction Act, and reflects the temporary expiration date for approved use of the forms. This date will be extended, and when approved, the same forms with the new expiration date will be posted.