CARES Act

Understanding the Paycheck Protection Program (PPP) Loan Forgiveness Provision

The application process for the SBA’s Paycheck Protection Program (PPP) began on April 3, 2020. Since then, businesses have been scrambling to complete the application and gather the supporting documentation to submit to their lenders. Borrowers are now beginning to be notified that their application has been approved, and some have already received their loan proceeds.

Once a business obtains these funds, the next fundamental question will be: How much of my loan will be forgiven and what do I need to do in the meantime?

It is important to note that the critical 8-week period to determine PPP loan forgiveness begins on the day that the loan is funded. Borrowers should be planning ahead for their loan forgiveness to maximize their loan forgiveness.

The maximum amount of a PPP loan that is eligible for forgiveness is equal to the amount an employer spends on qualifying expenses during the eight week coverage period, beginning on the loan origination date. Qualifying expenses include the following:

  • Payroll costs; salary, wages, and commissions (not to exceed $100,000 per employee); and retirement and group health benefits
  • Rent payments on leases dated before February 15, 2020
  • Utility payments under service agreements dated before February 15, 2020
  • Mortgage interest payments incurred before February 15, 2020
  • Interest payments on other debt incurred before February 15, 2020

Additionally, in its April 2, 2020 Interim Rule, the SBA announced that no more than 25 percent of the loan forgiveness amount can be attributable to non-payroll costs.

Prior to the start of the eight week covered period, business owners should work with their accounting and finance teams to plan and manage their loan forgiveness, as well as how to document and track the use of loan proceeds, qualifying expenses, and employee head count and salary levels.

PPP Loan Forgiveness Planning

  • Integrate your loan forgiveness planning into your business planning so you understand the effect that different decisions will have on your loan forgiveness.
  • Project your allowable costs during the 8 week period to determine how much of the loan may be forgivable.
  • Estimate your FTE levels for the 8 week period and select the benchmark prior period that gives you the best answer related to retention of FTEs.
  • Estimate wage and salary levels during the 8 week period and compare them to the prior quarter to manage forgiveness related to wage reductions

Documentation and Tracking

  • Consider depositing loan proceeds in a separate bank account to avoid commingling with normal operating funds. The monthly statements for this account will serve as a roadmap of how the funds were used for qualifying expenses.
  • Talk to your payroll provider to ensure you will be easily able to obtain required payroll information.
  • Set up general ledger accounts or subaccounts to track costs during the coverage period.
  • Maintain physical and electronic files with supporting documentation of qualified expenses, which may include invoices, canceled checks, payment receipts, etc.
  • Work with your Human Resources department to accurately track employee Full Time Employees (FTEs) and their pay rates.

A major objective of the PPP loan program was to keep employees working. As a result, the amount of the forgivable portion of the loan will be reduced for either of the following:

  • Compensation levels that decrease by more than 25 percent for employees who earn less than $100K.
  • A decrease in the number of FTEs over the covered period. FTEs for the purposes of this calculation do not include employees who earn more than $100K annually.

The application for loan forgiveness begins at the end of the 8 week period after the loan is made, and will require supporting documentation related to the qualified expenses. In addition, PPP borrowers will be required to submit a certification stating that the amount for which forgiveness is requested was used for appropriate purposes. Lenders then will have 60 days to make a determination on the amount of loan forgiveness and notify the borrower.

You can learn more about how Kreischer Miller can support you through the PPP loan forgiveness process here.

If you have any questions or would like to discuss your organization’s circumstances, please contact your Kreischer Miller relationship professional or any member of our team. Visit our COVID-19 Resource Center for more relevant information.

Contact the author, Thomas C. Yankanich, at Email

Information contained in this alert should not be construed as the rendering of specific accounting, tax, or other advice. Material may become outdated and anyone using this should research and update to ensure accuracy. In no event will the publisher be liable for any damages, direct, indirect, or consequential, claimed to result from use of the material contained in this alert. Readers are encouraged to consult with their advisors before making any decisions.