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Calculating PPP Loan Forgiveness and Applying

The Coronavirus Aid, Relief, and Economic Security Act (also known as the CARES Act) was passed into law on March 27, 2020. It was known as the secondary response to the devastating economic effects of COVID-19. This new law provided benefits to both individuals and small business owners nationwide. 

One of its main components was the Paycheck Protection Program or PPP. This program offers loans that are forgivable for small business owners and to keep their employees on the payroll. 

Guidelines For Loan Forgiveness

In order for these loans to be “fully forgivable”, borrowers need to ensure that they do the following:

  • Loans have to be used only for “qualifying payroll and non-payroll expenses” during the term period, which is 24 weeks from the day of the first disbursement. An alternative “covered period” can be 24 weeks beginning from the first day of the first pay period after the acceptance of the disbursement. If you received your loan before June 5, you can choose to use an “eight-week covered period”. 
  • Keep full-time equivalent (FTE) employee levels, rehire any employees that have been laid off before the end of the coverage period. If you were unable, you need proof that you were not able because of rehiring rejections or adherence to health guidelines.
  • Don’t decrease hourly wages or salaries exceeding 25% for employee earnings between January 1, 2020 and March 31, 2020. You also have the option of increasing the wages back up before the end of the coverage period. 

If the borrower fails to abide by these guidelines, there will be a reduction in the “forgivable portion” of the PPP loan. 

Calculating PPP Loan Forgiveness

Lenders will gladly assist you in calculating your loan forgiveness. However, you can get an idea by using a loan forgiveness calculator or estimator. For the 24-week period of coverage, you will need the following information:

  • The amount of the loan
  • All eligible payroll costs
  • Mortgage, rent, utility costs, and mortgage interest
  • Adjustments for FTE, EIDL, and wage reductions

When you have collected all the aforementioned numbers, you can begin with the amount of PPP loan funding you borrowed and utilized for payroll expenses and “qualified expenses” (mortgage, rent, utility cost, mortgage interest). This is the highest amount that you can be forgiven. 

After this, you can subtract the percentage of “reduced wages”. You need to repeat this for any reductions in the average full-time workers per month, and the average full-time worker percentage reduction. Lastly, you can subtract any funding that you have received from the EIDL. This result is your loan forgiveness amount. 

Because eligibility for the PPP loan forgiveness is based on keeping your current employees as well as paying their wages, think about rehiring and hold onto your FTE employees. 

Applying For The PPP Loan  

Once you reach the end of the 24-week period, you are eligible to apply for loan forgiveness directly from your lender. Have the following information ready:

  • Proof of how you used your PPP loan.
  • Documentation that states whether both your payroll and amount of employees stayed the same during the 24-week period.
  • Any supporting documentation that demonstrates the above. 

When the loan forgiveness amount is calculated, the lender will submit this information to the SBA within 60 days. Within 90 days of receiving your application from your lender, the SBA will issue a final decision. 

Stay Informed

This is just one of many resources for small businesses to carry them through this uncertain time. As changes occur daily with these government programs, stay informed as much as possible by visiting the SBA website and consulting with your lender.