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What Now? How to Get Your Paycheck Protection Program Loan Forgiven

What Now? How to Get Your Paycheck Protection Program Loan Forgiven

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The loan forgiveness period for the Paycheck Protection Program was extended from eight to 24 weeks by the Paycheck Protection Program Flexibility Act of 2020.


In a matter of weeks, the federal government doled out more than $650 billion in forgivable loans to small businesses. While your loan allows you to continue paying your employees during the COVID-19 crisis, you need to plan carefully to make sure the loan proceeds are used correctly. Otherwise, your loan might not be forgiven.

Here’s the advice I’m giving to my clients about PPP loan forgiveness:

What Now - Loan Forgiveness - DAG

How to Spend the PPP Loan Proceeds

Proceeds must be spent on two areas.

Payroll Costs

At least 75% of your loan should be spent on payroll costs, which include salaries, vacation time, retirement plan contributions, health insurance expense and state unemployment taxes.

Other Allowable Expenses

The balance of the money should be spent on the other allowable expenses, specifically including rent, utilities and mortgage interest.

How Long Is the Required Spending Timeframe?

The loan proceeds must be spent within eight weeks from date the loan was funded. The loan period essentially covers four two-week pay periods.

The spending window is critical as you try to qualify for loan forgiveness. We outline a plan below for documenting how you spend the loan proceeds, and when.

But be careful. Pay attention to due dates. Pay your rent and utilities on time. Make your mortgage payment on time. I’ve talked with a number of business owners whose landlords allowed them to defer payments of rent. While it’s nice to have the option to defer rent, it’s better to push that deferral out two months and pay full rent during this period. I encourage you to use your PPP money during the eight-week timeframe. It’s what the money is there for. If you make payments outside of the eight-week window, even by one day, it doesn’t count in the calculation for loan forgiveness.

How to Document the Spending

This is the question I’m getting from every client. Although various spreadsheets have been floating around, there is no official way — at least not yet — to document the spending.

However, you will be seeking loan forgiveness, so you DO have to document your spending.

I recommend that you:

  1. Open a new bank account for the PPP loan proceeds to help with documentation
  2. Deposit the full PPP loan proceeds into the new bank account
  3. Take money from that account and put it into your general operating account to pay qualified expenses (covering payroll, health insurance, retirement benefits, rent, utilities and interest) on the date of each payroll
  4. Process payroll as your normally would

Eight weeks will, in most cases, cover four payroll periods. Over that period there will be four transfers of funds that add up to the total amount of the loan you used. This total amount used will enter the computation of how much qualifies for loan forgiveness, which we’ll get to in a moment.

If an employee doesn't want to be rehired, the SBA has provided additional guidance which states that a borrower’s PPP loan forgiveness amount will not be reduced if a borrower laid off an employee, offered to rehire the same employee and the employee declined the offer.

How and When to Request Loan Forgiveness?

The answer to the when question is easy. You should request forgiveness eight weeks and one day after your loan was funded.

However, the answer about how to request loan forgiveness is less clear. There is no form or process for requesting loan forgiveness — at least not yet.

Guidance on how to request forgiveness will eventually be issued, but for now my best advice is to regularly check in with your banker. Each bank, similar to the PPP application process, will probably have their own method for requesting loan forgiveness.

What Percentage of the Qualifying Expenses Will Be Forgiven?

It’s important to understand that even if you spent the loan money in exact accordance with the rules (payroll and related expenses, rent, utilities, etc.) it’s not a given that 100% of the loan will be forgiven.

You have to determine what percentage of the loan is forgivable. There’s a calculation for doing so, and it’s based on the monthly average number of full-time employees (FTEs).

The first question business owners usually ask, before even tackling the calculation, is “what’s a full-time employee (FTE)?” While the Payroll Protection Program does not define what an FTE is, there are varying definitions out there, including one from the Small Business Administration, that describe full-time employees as working 30 or more hours each week. When I advise my clients on the PPP calculation while we wait for additional guidance to be issued, I use this definition.

Let’s look at a real-life example that shows how to calculate the percentage of qualifying expenses that will be forgiven.

Ben’s Automotive Supply is a distribution business that opened in 2015. Just before the pandemic hit in early 2020 they had 135 FTEs. The business had an average of 125 FTEs during 2019.

We have to look at two comparable time periods, designated by the PPP, and the average number of FTEs that Ben’s Automotive Supply had during each time period:

Time Period Average Number of FTEs
January 1 - February 29, 2020 135
February 15 - June 30, 2019 125

Then during the period of using the PPP loan, if Ben’s had 100 FTEs, 100 divided by 125 (the lower of the two numbers above) is 80%.

Ben’s Automotive Supply is eligible to have 80% of its loan forgiven.

If your business had the same number of FTEs in both of the time periods, 100% of the loan will be forgiven.

I think making this calculation early is critical so you can have a good idea of much of the loan may be forgiven. Of course, if the calculation isn’t clear for your business or if you have questions, work with your CPA or banker.

What Should You Do Next After Securing a PPP Loan?

As soon as you secure your PPP loan, look ahead. The clock starts ticking as soon as you receive your PPP loan. You have eight weeks to spend the money, but don’t wait eight weeks to start thinking about life beyond that time period.

The Paycheck Protection Program buys you time before you have to implement any significant changes in your business. But think about where you want to be at the end of those eight weeks NOW. Work up various scenarios — best case, worst case, etc. — of where your business might be in eight weeks, and come up with a plan for how you will move ahead under each scenario.

In other words, lay out your plan NOW as to where you want your business to be in eight weeks.

Key Takeaways

  1. You have eight weeks to spend the loan proceeds
  2. Track your spending of the loan
  3. Talk directly with your banker about how to request loan forgiveness
  4. The amount of loan forgiveness is based on the average number of full-time employees (FTEs) as a percent of the base period employment
  5. Look ahead to where you want your business to be at the end of the eight-week spending period

Need Help?

Contact us here or call 800.899.4623.

This is part of our What Now? series, where we consider what business owners should do now to keep moving forward in a drastically changed business landscape. 

What Now: A Video Series for Business Owner

Published on April 30, 2020