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Paycheck Protection Program Loan Forgiveness


If your business obtained a Paycheck Protection Program Loan (PPP Loan), you probably already knew that the U.S. Small Business Administration (SBA) would forgive loan if all employee retention criteria are met, and the funds are used for eligible expenses. Loan forgiveness amount is subject to the employer maintaining salary levels. Loan forgiveness amount will be reduced if full-time headcount declines, or if salaries and wages decrease. In this newsletter, we provide you with the instructions and tool to calculate the PPP loan forgiveness amount.


Information needed for the calculator:

• Loan information: amount and received date.

• Covered periods: from 8 to 24 weeks after loan received date.

• Payroll information: payroll periods, payroll payments, employee information, full-time. employee headcount, and other employee compensation.

• Mortgage interest payment on real or personal property.

• Rent or lease payment on real or personal property.

• Utilities payment: transportation, electricity, gas, water, phone, internet, and others.


Limitation of owner-employee

The SBA has continued to restrict the benefits to "owners of a borrower" under the Paycheck Protection Program by applying the following caps on the amount of their Payroll Costs that can be forgiven. Payroll costs related to compensation during the eight-week period are capped at 8/52 (or 24/52 with the election) of 2019 total compensation (i.e., cash compensation and benefits). This amount includes employer contributions for retirement and healthcare, but incorporates a limitation based on 2019 total compensation. Also, just as other employees, the maximum salary for the forgiveness calculation purpose is capped at $100,000.


Definition of owner-employee

The SBA has invented a new category, owner-employees but, there is no explanation in the PPP Loan Application of when an employee falls into this new category of “owner-employee”. The SBA still has not defined the “owner-employees.” The PPP Loan Application defined “owner” as anyone who owns 20% or more of the applicant, but it is not clear this applies in this context. Because of the SBA’s use of the Internal Revenue Code as a basis for the rules in this area, there is a reason to believe that the SBA may at least exclude owners of 2% or less of the company from these limitations, but nothing definitive on this so far.


Can the borrower apply for forgiveness before cover period end?

PPP loan recipients can apply for loan forgiveness before their 24-week covered period ends, according to the SBA and US Treasury Interim Final guidance issued on Monday, June 22, 2020. If the borrower has used all the loan proceeds for which a borrower is requesting forgiveness, the borrower can submit a loan forgiveness application any time on or before the maturity date of the loan, including before the end of the covered period. However, please note, if the borrower applies for forgiveness before the end of the covered period and has reduced any employee’s salaries or wages in excess of 25%, the borrower must account for the excess salary reduction for the full 8-week or 24-week covered period.