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, , 28 May, 2020

Top 10 PPP Loan Forgiveness questions, ANSWERED!

Top 10 PPP Loan Forgiveness questions, ANSWERED!


Wednesday, June 3rd, Congress passed an update to the CARES Act that extends the time from 8-weeks to 24-weeks. The percentage of PPP Loan funds spent on payroll lowered to 60%. Loan maturity extends to 5 years with the bill too. The new relaxed rules are a huge relief to many businesses, some who have not yet to reopen.

Payment Protection Program Loan Forgiveness Frequently Asked Questions

After all the confusion, document gathering, and waiting, your loan funded. The big question now is, how do I get the loan forgiven? How do I get the entire loan forgiven? Not to worry, we will explain how to maximize your loan forgiveness.

Our government enacted the Payment Protection Program in haste. Consequently, details of how it all works were not even formulated when applications and even funding began. Recent updates are now available, and for the most part, answer many of our questions. We work diligently in reviewing all guidance provided by SBA and have clarification on the majority of our concerns and the most frequently asked questions from our clients below.   

Please call or text us at 801-616-3864 with any questions

PPP Loan forgiveness objective to keep people employed.


The SBA’s PPP was created to save America’s core economic engine and largest employer, small business. PPP loans are providing immediate cash to incentivize small businesses to keep and rehire their employees. If small business qualification criteria are met, the PPP loan amount is based upon 2.5 months of payroll. Loans are able to be 100% forgiven if the borrower follows SBA guidelines. Initial guidelines stated loans received needed to be spent on payroll and other qualifying expenses during the 24 week period after the loan was received. Payment on any remaining balance post loan forgiveness begins from the date the lender receives forgiveness funds from the government. Ask your lender for details The Interest rate on unforgiven amounts is a whopping low 1% with five-year payment terms, and no collateral or personal guarantees are required.


How do I apply for forgiveness?

Submit SBA’s new loan forgiveness form to your PPP lender. See it here, in all its glory, 11 pages with worksheets and instructions:

It is important to understand this application form is detailed and even requires specific calculations for each employee. You should be prepared with detailed payroll reports and any invoices or receipts for qualifying expenses you intend to use for forgiveness. Not only will your preparation save you time when preparing your application, but these documents will be required as supporting documentation with your submission. Additionally, before preparing the application, you should review your particular lender’s loan forgiveness process. We are ready to help if you need assistance.

When does the 24-week spending period begin to maximize forgiveness?

The Covered Period begins the day your lender gives you the money and lasts until your lender receives the forgiveness funds. Yes, there are specific criteria applicable to payroll allowing greater flexibility outside of the 24-week period. There is also an Alternative Payroll Covered period election – see Page 1 of the application.

How does PPP money need to be spent to obtain forgiveness?

At least 60% of the forgivable amount spent must cover payroll costs: salary, wages, commissions, cash tips, payment for leave, allowance for separation or dismissal, employee benefits, group healthcare coverage, group plan insurance premiums, employer retirement contributions, state and local taxes on employee compensation.

  • Do not include employee payroll withholdings for retirement contributions, other benefits, or taxes; they are already included in the wage/salary amounts.
  • Do not include workmen’s compensation premiums – these are insurance, not a tax.
  • Compensation base for employees, sole proprietors, or partners is capped at $100,000 annually or $15,385 for the 24 weeks. Compensation for owners cannot exceed 2019 levels. It appears that retirement and benefit costs are not allowed for owners, although this exclusion does not appear in the original legislative text.
  • If employees have had compensation reduced or increased by more than 25%, then it may affect your loan forgiveness amount.
  • Payroll costs do not include amounts paid to independent contractors.
  • Include payroll costs that are paid or incurred. Payroll costs are considered paid on the day that paychecks are distributed, or the date the Borrower originates an ACH credit transaction. Payroll costs are considered incurred on the day that the employee’s pay is earned. Payroll costs incurred but not paid during the Borrower’s last pay period of the Covered Period (or Alternative Payroll Covered Period) are eligible for forgiveness if paid on or before the next regular payroll date.
  • Self-employed individuals PPP Loan is based on the individual’s 2019 Schedule C, rather than any amounts paid or incurred in 2020.
  • Employees who primarily live outside of the USA cannot benefit from the PPP Loan.

Owners may pay up to 40% of the remaining forgivable loan amount on mortgage interest, personal property (equipment), rent/lease, and utilities on agreements in place before February 15th, 2020. Lenders are interpreting transportation utility to be fuel costs for business vehicles. Costs paid or costs incurred and paid by their due date after the Covered Period may qualify. If no documentation on a rental agreement exists, lenders may accept payment history documentation before February 15th, 2020 in place of a contract.

Can I prepay benefits, rent, utilities, etc.?

Can I prepay benefits, rent, utilities, etc.?

Prepayments are not forgivable

What if a payroll paid in my Covered Period includes wages prior to the Covered Period?

Currently, it appears all wages paid as payroll costs qualify without adjustment.

What is an FTE employee and why is this number important? 

FTE stands for “full-time equivalent”.  The objective of the PPP program is to maintain employment levels, so the reductions in the number of employees can reduce forgiveness amounts.  The SBA will determine if, during the 24-week covered period, a business employs fewer FTEs than it did during an elected reference period: either from 2019 or earlier in 2020. If the answer is no, then there is no reduction to PPP loan forgiveness, although it still may be reduced for wage reductions. UPDATE: The new bill also relaxed the FTE. Forgiveness may not be affected by a reduction in FTEs if the business is unable to rehire a qualified team member, and have documentation proving the inability to rehire.

FTE employee calculations outlined on page 7 of the application reflect a 40-hour week. The borrower may choose a simplified method that assigns a 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work fewer hours. FTE’s do not include contractors, owner-employees, or partners.

What is the FTE safe harbor?

A specified safe harbor may exempt a borrower from the loan forgiveness reduction based on FTE employee levels. The Borrower is exempt from the reduction in loan forgiveness if both of the following conditions are met. The Borrower lowered FTE employee levels between February 15, 2020, and April 26, 2020, and then restored FTE employee levels by June 30, 2020, to reflect the employment pay period that included February 15, 2020.

What if the furloughed employee is offered their job back and refuses?

An interim rule allows laid-off employees whom the borrower offered to rehire for the same wages and hours will not reduce loan forgiveness, even if they do not return. To qualify for this exception, document a good faith written offer to rehire, and the employee’s rejection.

Will my lender need documentation of how I spend my PPP loan funds?

Yes. Page 10 of the application outlines acceptable documentation, which may include payroll reports, bank statements, tax forms, payment receipts, canceled checks, invoices, loan amortization schedules, account statements, and lease agreements.

How will my EIDL loan/grant affect PPP loan forgiveness?

The SBA will deduct EIDL advance amounts from the forgiveness amount.

Is loan forgiveness taxable?

Is loan forgiveness taxable?

Loan forgiveness is not taxable. However, the IRS will deny a deduction for forgiven expenses paid, which leaves this in a tax neutral position.  There has been mention of a possible legislative change to make this more beneficial to the business. 


Underlining the hasty nature of the CARES Act legislation, several updates have taken place. More updates may arrive in the future. We will keep you updated.

We appreciate the opportunity to help dozens of businesses apply for PPP loans. Like most government programs, the devil is in the details, and SBA may yet issue additional guidance. We will update and create new articles to help clarify complex cashflow related information. To stay informed opt-in to our newsletter at [email protected]

Note: The material and contents provided in this article are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Ed Gabriel, CPA is President of DrillDown Solution and a graduate of Brigham Young University. His clients benefit from over 40 years of experience in maximizing profits, minimizing taxes and putting them in the best financial position possible.