Simplified Guidance to Applying for PPP Loan Forgiveness

By: Michael Washington

Amid the COVID-19 pandemic, many small businesses applied for a PPP loan (Paycheck Protection Program) to help them keep their workers on the payroll. The program closed in August 2020 and some of those businesses may now be looking for PPP loan forgiveness.


The process to gain PPP loan forgiveness requires filing the right application and having the right documents ready. If you have this information, the process can be a much smoother one. Let’s take a closer look at PPP loan forgiveness and how businesses can apply for it.


What is PPP loan forgiveness?


PPP loan forgiveness is when a business does not have to repay all of the loan money it received through the program. To qualify, certain requirements need to be met.

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What are the PPP Loan Forgiveness requirements?


To be eligible for PPP loan forgiveness, a small business must meet the following requirements pertaining to the money that was given.


  • Money was used for eligible payroll costs, payments on business mortgage interest payments, rent or utilities
  • Money was used either during the 8 or 24-week period after disbursement
  • All loan proceeds that the borrower is asking for forgiveness has been used


All businesses must meet these requirements before applying for PPP loan forgiveness.


What is the PPP loan forgiveness deadline?


The PPP loan forgiveness deadline will depend on the maturity date of the loan. Loans issued before June 5, 2020, have a maturity of 2 years. Loans issued after June 5, have a maturity of 5 years.


Borrowers can apply for forgiveness any time up to the maturity date of the loan. According to the Small Business Administration, if borrowers do not apply for forgiveness within 10 months after the last day of the covered period, the PPP loan payments are no longer deferred. Borrowers will then need to start making loan payments to their PPP lender.

Can I get a PPP loan forgiveness extension?


As of this writing, there are no PPP loan forgiveness extensions. The Paycheck Protection Program Flexibility Act already extended the deferral period for borrower payments from 6 months to 10 months after the borrower’s loan forgiveness covered period.


How do I calculate the amount forgiven on a PPP loan?


There is a handy calculator tool online that can help determine the amount that can be forgiven on a PPP loan. It should be noted that the calculator does not cover every situation. It’s best to work with your loan agent to determine the exact amounts involved in your specific situation.


Here’s a sample step-by-step list from the Small Business Advice site of how the amount forgiven on a PPP loan is calculated.


  • Step 1: Record the sum of your (1) Payroll costs, (2) Mortgage Interest payments, and (3) Utility costs
  • Step 2: Subtract the total amount of salary/hourly wage reductions from this number
  • Step 3: Multiply this number by the FTE Reduction Quotient (Schedule A, line 13)
    • The result is OPTION 1
  • Step 4: Record your PPP Loan Amount
    • This is OPTION 2
  • Step 5: Divide your payroll cost by .75
    • The result is OPTION 3
  • Step 6: Your PPP Loan forgiveness amount will be LESSER between Options 1, 2, and 3.


Any small business that took out $50,000 or less may have a simplified loan forgiveness process. The actual amount of loan forgiveness will depend on the amount of payroll and other eligible costs over the eight-week period after the loan date. This can be up to the full principal amount of the loan and any accrued interest. A maximum of 25% of the loan amount used for eligible non-payroll costs may be forgiven.

Is the PPP loan forgiveness taxable?


Under the CARES Act, the forgiven loan amount is not included in your taxable income, so you won’t pay taxes on the money you receive. The goal of the loans was not to create a tax burden for businesses receiving the funds.


How do I Apply for PPP Loan Forgiveness?


Applying for PPP loan forgiveness starts with using the right application because there are several to choose from. Your lender can help you determine which one is right for you.


These documents include the SBA Form 3508, SBA Form 3508EZ, SBA Form 3508S, or a lender equivalent. The 3508EZ and the 3508S are shortened versions of the application for borrowers who meet specific requirements.


The next step is to compile the right documents to submit. This includes:


  • Payroll information and bank account statements for third-party payroll providers to show the amount paid to employees
  • Tax forms  
  • Payroll tax filings reported or that will be reported to the IRS
  • State quarterly business and individual employee wage reporting and unemployment insurance tax filings
  • Payment receipts and information regarding contributions to employee health insurance and retirement plans that were included in the forgiveness amount 
  • Business mortgage interest payments
  • Copy of lender amortization schedule and receipts verifying payments, or lender account statements. 
  • Business rent or lease payments
  • Business utility payments


Once you have completed the correct form and have gathered all of the documents, you can submit them to your lender. Your lender should inform you if additional documents are needed. Also, if the Small Business Administration decides to review your loan, you will be notified.


When should I apply for PPP loan forgiveness?


Some businesses may already be eligible to apply for loan forgiveness, but it’s been recommended to wait a bit. A small business that applies for PPP loan forgiveness too early may not get the entire amount forgiven. It depends on whether you chose the 8-week or 24-week covered period. Your lender may be able to advise you about the best time to apply for forgiveness based on your specific situation.


The Bottom Line on PPP Loan Forgiveness


When it comes to PPP loan forgiveness, it’s important to make sure you apply within the time period and meet the criteria. You also want to have the right application so you don’t waste time and have all the right documents ready to go. Following these steps and keeping in contact with your lender through the process should increase your chances of having a good portion of your PPP loan forgiven.

More information on the PPP Loan Forgiveness House Bill can be found by going to H.R.7010 – Paycheck Protection Program Flexibility Act of 2020.

How to apply for the PPP 2 Loan


We’re excited that a $287B new round of funding for PPP is now approved. Our partners at SmartBiz Loans has prepared PPP Prep Lists to help first time as well as for second time borrowers prepare for their PPP application.

Prep List for 1st Time PPP Applicants ›

Prep List for 2nd Time PPP Applicants ›

Use these Prep Lists to get organized for this new round of PPP funding.

Applying for the PPP 2 Loan by going to the SmartBiz online PPP application.



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