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Securing Loan Forgiveness Under the Paycheck Protection Program

The CARES Act includes a loan forgiveness provision for loans that businesses received under the Paycheck Protection Program (PPP). While the details are not clear, the Small Business Administration (SBA) has promised to clarify them soon. However, here are the answers to some commonly asked questions.

How Long Will I Have to Spend the Money?

You will have eight weeks (the “covered period”) from the time the SBA funds the loan. The clock begins ticking immediately for the covered period upon receipt of the funds. The purpose of the program is to help businesses pay their employees now.

How Can I Record the Proceeds of the Loan?

You can have cash taken from your account and put into a newly created liability account called a “PPP Loan.” The agency does not require you to keep a different bank account for tracking your PPP proceeds. The best practice is to keep the funds segregated in a bank account that is separate from the operating accounts and code each transfer out of such account for tracking purposes. Then you can transfer the money into your payroll and checking accounts as you spend the funds on covered costs.

What Must I Spend the Loan Proceeds On?

Rent, interest, utilities, and payroll costs are all “covered costs.” However, you must spend a minimum of 75% of your proceeds on payroll costs to maximize loan forgiveness.

What Do Payroll Costs Include?

The definition of payroll costs remains the same as that used to determine your loan amount. These costs include cash tips, gross wages, and parental, vacation, medical, sick, or family leave. They also include an allowance for dismissal or separation, as well as retirement and group health insurance. In addition, it includes any taxes on wages assessed locally or statewide. However, payroll costs will not include employers’ portions of workers’ compensation premiums or federal payroll taxes. If you have already laid off your employees, you should contact your employment lawyer. You also have until June 30, 2020 to rehire your employees and restore the full-time employee (FTE) head count for your business.

How Much of A PPP Loan Will the Agency Forgive?

The SBA may forgive as much as 100% of a PPP loan. There are several ways in which it will reduce forgiveness.

These include:

  • You have not spent all the proceeds. There are insufficient rent, payroll, and utility costs in the eight weeks for you to spend the whole amount.
  • You reduced your business’ FTE count.
  • You reduced your employees’ wages/salaries by more than 25%.

You can avoid this by eliminating the FTE reduction or wage reduction by June 30.

Which Documentation Must I Provide?

You will need to supply certain documents as supporting evidence for your loan forgiveness calculation. These include:

  • Payroll tax filings
  • Calculations for FTEs
  • Account statements
  • Verification of payment
  • Bills

It is a good idea to keep a spreadsheet to show all your eligible expenses when you have incurred them. You should also file copies of the documentation to support them in a different folder.

How Can I Apply?

At the moment, there has been no clarification for the application process to forgive loans. However, each lender is going to have a process of its own to make an application. After making the application, your lender has a period of 60 days in which to review then approve the request. For the portion of the loan it does not forgive, the term will be two years at 1% interest. There is no personal guarantee or collateral required, and there are no penalties for prepayment. You will not need to make any repayments for six months. However, the interest will accrue in the six-month payment deferral period.

For more information about this article, please contact our tax professionals at or toll free at 844.4WINDES (844.494.6337).
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