PPP Loan Forgiveness: What's Next for Borrowers

UPDATEWork surface and kitchen equipment in professional kitchen

Update as of October 8, 2020:

The Small Business Administration released a much-anticipated, streamlined loan forgiveness application for Paycheck Protection Program loans totaling $50,000 or less. While eligible loans account for just 9% of overall PPP loan dollars, they amount to about two-thirds of all PPP loans.

The two-page forgiveness application, Form 3508S, includes certifications from the borrower but does not require calculations to be submitted with the application. Applicants must submit documentation verifying forgivable payroll and non-payroll expenses. Borrowers are required to retain the documentation supporting their certifications for six years, but do not need to submit it.

Download Form 3508S
Download the instructions for form 3508S
Read the interim final rule
On June 5, the President signed legislation to address restrictions on the Small Business Administration’s (SBA) Paycheck Protection Program (PPP).  While it is expected that further clarification and guidance will be released, here is a summary of the provisions that appear in the Paycheck Protection Program Flexibility Act.

The SBA and Treasury Department released updated Paycheck Protection Program loan-forgiveness applications implementing PPP Flexibility Act reforms.

The agencies issued a revised full forgiveness form and new EZ application form requiring less calculation and documentation as well as updated instructions for the regular Form 3508 and Form 3508EZ.

The new EZ Form applies to borrowers that:

  • Are self-employed and have no employees, or
  • Did not reduce their employees' salaries or wages by more than 25 percent and did not reduce their employees' number or hours, or
  • Experienced reductions in business activity due to health directives related to COVID-19 and did not reduce the salaries or wages of their employees by more than 25 percent.

The SBA also issued a new interim final rule implementing PPP Flexibility Act reforms, including updates to the forgiveness covered period. Both applications allow borrowers to use the original eight-week covered period (for loans made before June 5) or an extended 24-week covered period authorized by the PPPFA.

Updated Borrower Application Form (As of June)

Extension of the Covered Period for PPP Loans to 24 weeks

The new legislation extends the covered period to 24 weeks from loan disbursement or December 31, 2020, whichever is earlier. This will provide significant additional time for borrowers to make eligible expenditures under PPP loan funds. 

Non-Payroll Costs Limited to 40%

The new legislation relaxes this requirement by requiring a borrower to use at least 60 % of the loan proceeds on payroll. Therefore, a borrower could use up to 40% of its loan proceeds on rent, utilities, and other qualified expenditures.

PPP Program Now Open until December 31

The PPP program is now scheduled to expire on December 31, 2020. This means, in part, that borrowers presumably have until December 31, 2020, to restore full-time equivalent (FTE) employee count and any salary reductions. Borrowers eligible for full forgiveness during the original eight-week covered period may choose to apply that period (rather than the new 24-week period) in order to measure any FTE or salary reductions against the June 30 date (rather than waiting until December 31). New borrowers can also apply for new PPP loans until December 31, 2020, so long as funding remains in the program.

New FTE Rules in Play for PPP Loans

Reductions to a borrower’s average FTE count can reduce that borrower’s potential forgiveness amount. The original statute introduced several safe harbors allowing a borrower to avoid a forgiveness reduction, and the new statute introduces two new exceptions.

Specifically, a borrower will not have its forgiveness reduced on account of any FTE reduction if the borrower is able, in good faith, to document one of the following:

  1. An inability to rehire employees who were employed on February 15, 2020, and an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020.
  2. An inability to return to the same level of business activity as compared to the period before February 15, 2020, due to compliance with requirements established or guidance issued by certain governmental agencies during the period beginning on March 1, 2020, and ending on December 31, 2020, related to sanitation/social distancing/other safety requirements from COVID-19.

Payroll Tax Deferral

As part of its response to the COVID-19 pandemic, Congress is allowing certain employers (and self-employed individuals) to defer the employer’s share of employee payroll taxes for the 2020 tax year, with any deferred amount paid back in 2021 and 2022. However, Congress and the IRS have both stated PPP loan borrowers could not make use of this deferral once their loan was forgiven. The new legislation changes this by allowing a borrower to defer its share of eligible payroll taxes like any other taxpayer even if the borrower’s PPP loan is forgiven.

New Term for PPP Loans

The new legislation extends the term of PPP loans, closed after June 5, 2020, from two to five years and allows for deferral of principal and interest payments until the date on which the PPP loan is partially or wholly forgiven.


Congratulations! You were able to secure your PPP loan and take a small breath of relief. What's next? The SBA has issued new details on loan forgiveness as well as a debt forgiveness application you can start filling out now. Please make sure to go to the SBA website for general guidelines and the latest information. Also, make sure to consult with your CPA on these updates. Probably the most important advice is to keep meticulous records and accounting of how you spend the PPP loan funds to ensure debt forgiveness when the 24-week period is over. 

The general guideline from the Treasury for PPP loan forgiveness specifies that: “Loan amounts will be forgiven as long as: 1) Loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs over the 24 week period after the loan is made; and 2) Employee and compensation levels are maintained.”

The loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities (due to likely high subscription, at least 60% of the forgiven amount must have been used for payroll). Loan payments will also be deferred for six months. No collateral or personal guarantees are required. Neither the government nor lenders will charge small businesses any fees. This loan has a maturity of 5 years and an interest rate of 1%.

Loan Forgiveness

Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease. The loan forgiveness form and instructions include several measures to reduce compliance burdens and simplify the process for borrowers, including:

  • Options for borrowers to calculate payroll costs using an “alternative payroll covered period” that aligns with borrowers’ regular payroll cycles
  • Flexibility to include eligible payroll and non-payroll expenses paid or incurred during the 24-week period after receiving their PPP loan
  • Step-by-step instructions on how to perform the calculations required by the CARES Act to confirm eligibility for loan forgiveness
  • Borrower-friendly implementation of statutory exemptions from loan forgiveness reduction based on rehiring by December 31
  • Addition of a new exemption from the loan forgiveness reduction for borrowers who have made a good-faith, written offer to rehire workers that was declined

Click here to download the Paycheck Protection Forgiveness Loan Forgiveness Instructions and Application.

Documents that Each Borrower Must Submit with its PPP Loan Forgiveness Application

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Here are some suggestions we found to prepare for maximum loan forgiveness at the end of the 24-week covered period.

Track total eligible costs incurred and paid during the 24-week period following the loan funding.

When does the 24 week period begin to determine the amount of the forgiveness for the PPP loan? The 24 week period begins on the date the lender makes the first disbursement of the loan. The lender must make the first disbursement of the loan no later than 10 calendar days from the date of the loan approval.

What To Track (items that will need to be submitted with your debt forgiveness application):

Payroll costs:  Documentation verifying the eligible cash compensation and non-cash benefit payments from the Covered Period or the Alternative Payroll Covered Period consisting of each of the following:

  1. Bank account statements or third-party payroll service provider reports documenting the amount of cash compensation paid to employees.
  2. Tax forms (or equivalent third-party payroll service provider reports) for the periods that overlap with the Covered Period or the Alternative Payroll Covered Period:
    i. Payroll tax filings reported, or that will be reported, to the IRS (typically, Form 941); and
    ii. State quarterly business and individual employee wage reporting and unemployment insurance tax filings reported, or that will be reported, to the relevant state.
  3. Payment receipts, cancelled checks, or account statements documenting the amount of any employer contributions to employee health insurance and retirement plans that the Borrower included in the forgiveness amount (PPP Schedule A, lines (6) and (7)).

FTE: Documentation showing (at the election of the Borrower):

  1. the average number of FTE employees on payroll per month employed by the Borrower between February 15, 2019 and June 30, 2019;
  2. the average number of FTE employees on payroll per month employed by the Borrower between January 1, 2020 and February 29, 2020; or
  3. in the case of a seasonal employer, the average number of FTE employees on payroll per month employed by the Borrower between February 15, 2019 and June 30, 2019; between January 1, 2020 and February 29, 2020; or any consecutive twelve-week period between May 1, 2019 and September 15, 2019.

The selected time period must be the same time period selected for purposes of completing PPP Schedule A, line 11. Documents may include payroll tax filings reported, or that will be reported, to the IRS (typically, Form 941) and state quarterly business and individual employee wage reporting and unemployment insurance tax filings reported, or that will be reported, to the relevant state. Documents submitted may cover periods longer than the specific time period.

Nonpayroll: Documentation verifying existence of the obligations/services prior to February 15, 2020 and eligible payments from the Covered Period.

  1. Business mortgage interest payments: Copy of lender amortization schedule and receipts or cancelled checks verifying eligible payments from the Covered Period; or lender account statements from February 2020 and the months of the Covered Period through one month after the end of the Covered Period verifying interest amounts and eligible payments.
  2. Business rent or lease payments: Copy of current lease agreement and receipts or cancelled checks verifying eligible payments from the Covered Period; or lessor account statements from February 2020 and from the Covered Period through one month after the end of the Covered Period verifying eligible payments.
  3. Business utility payments: Copy of invoices from February 2020 and those paid during the Covered Period and receipts, cancelled checks, or account statements verifying those eligible payments.

Documents that Each Borrower Must Maintain but is Not Required to Submit

PPP Schedule A Worksheet or its equivalent and the following:

  1. Documentation supporting the listing of each individual employee in PPP Schedule A Worksheet Table 1, including the “Salary/Hourly Wage Reduction” calculation, if necessary
  2. Documentation supporting the listing of each individual employee in PPP Schedule A Worksheet Table 2; specifically, that each listed employee received during any single pay period in 2019 compensation at an annualized rate of more than $100,000.
  3. Documentation regarding any employee job offers and refusals, firings for cause, voluntary resignations, and written requests by any employee for reductions in work schedule.
  4. Documentation supporting the PPP Schedule A Worksheet “FTE Reduction Safe Harbor.”

All records relating to the Borrower’s PPP loan, including documentation submitted with its PPP loan application, documentation supporting the Borrower’s certifications as to the necessity of the loan request and its eligibility for a PPP loan, documentation necessary to support the Borrower’s loan forgiveness application, and documentation demonstrating the Borrower’s material compliance with PPP requirements. The Borrower must retain all such documentation in its files for six years after the date the loan is forgiven or repaid in full, and permit authorized representatives of SBA, including representatives of its Office of Inspector General, to access such files upon request.

Portrait of a pretty barista with hands on hips at the coffee shopLast, it is very important to understand that some calculations and eligibility changes could occur as the SBA provides additional guidance. Be sure to study the information as it becomes available, decide what is best for your business and keep excellent records. You made it this far... let's cross that finish line together!



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