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PPP Loan Repayment and Forgiveness Guide


The Payment Protection Program (PPP) has quickly grown to become an essential tool for small businesses. In June 2020, it was passed as part of the CARES Act in response to the COVID-19 pandemic. The program was designed to help small businesses weather the pandemic and give them the financial aid to keep their doors open. Almost a year and many SBA clarifications later, we have come up with a quick guide on how to apply for forgiveness or repayment. Please keep in mind that some of the original rules and terms have changed due to the Paycheck Protection Flexibility Act (PPPFA).


What Expenses Make Me Eligible for Forgiveness?

Through the PPFA, PPP borrowers can apply for forgiveness on loan proceeds that they spent on eligible expenses at or before December 31st, 2020, and within the 24-week period following the loan disbursement. The actual loan disbursement date will determine whether the loan proceeds are treated as payroll covered period or alternative covered period. Because the original eligibility under the CARES Act lasted 8 weeks after the loan was funded, borrowers whose loans originated before June 5th, 2020, can restrict forgiveness.

What Documentation Should I Have Before Applying for Forgiveness?

Each lender has its own PPP loan forgiveness requirements. However, the following are some common items you may want to bring:

· Proof of full-time (FTE) or FTE-equivalent employees’ status on payroll, including salaries or rates of pay for each employee

· Proof of payments to rent/mortgage or utilities

· Documentation of expenses and agreements related to mortgages, leases/rent, or utilities


Eligible Expenses

The SBA categorizes eligible expenses as payroll and non-payroll expenses that may qualify for forgiveness. Payroll expenses include these items:

  • Annualized compensation, including salaries, wages, tips, and commissions-- up to $100,000 per employee

  • State & local employer-paid payroll taxes

  • Employee benefits, such as PTO or vacation, sick time/paid leave, insurance, and retirement expenses (health, dental and vision insurance + 401(k) or other retirement benefits)

  • 1099 pay to contractors or self-employed individuals of up to $100,000 per year

(Note: Self-employed individuals who funded their loans after June 5th, 2020, can have up to $20,833 in PPP loans forgiven. For borrowers who had their loans funded prior to this date, up to $15,835 can be forgiven. In both cases, the amounts can be forgiven regardless of how the money was spent.)


The PPPFA later capped non-payroll expenses at 40%, which included mortgage interest, rent, and utilities.

Borrowers who did not spend 60% of the proceeds in payroll can still apply for forgiveness and repay the difference for any non-payroll and payroll expense. Not meeting the 60/40 ratio does not make the company ineligible for forgiveness.

I Have My Documentation, Now What?

Most of the clients we work with qualify for Loan Forgiveness under $2 million through the SBA Form 3508S.

Borrowers meeting 1 of the 3 requirements would use the SBA Form 3508EZ:

  • The business consists of self-employed individuals (commonly known as independent contractors or 1099 contractors) and sole proprietors who had no employees at the time of applying for the PPP

  • The borrower did not reduce pay by more than 25% for any employee (hourly or salary) during the covered period. Because of COVID-19 requirements or guidance issued by federal, state, or local authority (such as the CDC or state government in the year 2020), the business was unable to continue operation during the same covered period.

  • The borrower did not reduce the number of employees or paid hours and did not reduce compensation by more than 25% during the covered period following January 1st, 2020.


Most lenders have provided borrowers with easy-to-use guides and clarification of requirements for those seeking forgiveness. Keep in mind that each lender has their own requirements as to what evidence they seek for forgiveness.


Once proper documentation is submitted, the SBA allows the lender 60 days to determine whether the loan is forgivable.


Please keep in mind that this is a quick guide on PPP loan forgiveness. There are other factors that should be considered, so we advise that you consult with your tax and financial professional. In the meantime, Sun Valley Financial is happy to help you navigate through the application process.



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