Maximizing Your PPP Loan Forgiveness

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If you are a business owner that has applied and received a Paycheck Protection Program (PPP) Loan backed by the Small Business Administration (SBA), you are likely looking to maximize full forgiveness of the loan.

Forgiveness Requirements

Whether the business received First Draw PPP Loan and/or a Second Draw PPP Loan, the loan qualifies for full forgiveness if during a period of 8 or 24 weeks (the Covered Period) after receiving the loan:

  • Employees and compensation levels that existed before receiving the PPP loan are maintained;
  • Loan funds were spent on payroll costs and other eligible expenses; and
  • At least 60% of the loan funds were spent on payroll expenses. Payroll Expenses include:
  • compensation to US employees in the form of salary, wages, commissions, or similar compensation
  • cash tips or the equivalent
  • payment for vacation, parental, family, medical, or sick leave
  • allowance for separation or dismissal (severance pay)
  • payments into employee benefits consisting of group health care coverage (medical, dental, and visions) and disability, including insurance premiums, and retirement
  • payment of state and local taxes as they pertain to employment
  • and for an independent contractor or sole proprietor, wage, commissions, income, or net earnings from self-employment or similar compensation

40% of the loan funds can be used for other expenses such as:

  • Mortgage interest
  • Rent or lease payments
  • Utility payment

Maximizing Payroll Expenses

The PPP funds were intended primarily to keep employees on payroll so maximizing payments going towards payroll expenses will make it easier to meet the requirement of 60% of the proceeds going towards payroll expenses. However, there are some limitations:

  • Forgivable payroll expenses are limited to wages or salary of $100,000 per employee annually or earning less than $100,000; or
  • Employees earning $8,333 monthly; or
  • $1,923 weekly

Fortunately, contributions to employee group health plans, disability plans, and retirement benefits do not fall within the cap on employee wages and salaries. So employers should continue to contribute to these benefits plans as they fall under payroll expenses.
Items that are excluded from payroll costs are:

  • The employer contributions portion of the Social Security payroll taxes; and
  • Amounts paid to independent contractors

Avoid Terminating Employees or Reducing Compensation

A requirement to PPP loan forgiveness is that employees and compensation levels are maintained during the Covered Period. For this reason, businesses need to carefully consider whether to terminate a full-time equivalent employee (FTE) or reduce the compensation of employees as these events reduce the forgivable amount of the PPP loan funds.

Clear Recordkeeping and Accounting

In order to qualify for PPP loan forgiveness, supporting documents such as payroll tax filings and other state quarterly reports, including wage and unemployment insurance tax filings may need to be provided. This means companies should keep clear and complete records related to employment, payroll, and other business expenses.

A separate bank account for the PPP loan proceeds is recommended for clear tracking of the funds. No other business funds should be comingled with PPP loan proceeds. Companies should immediately notify their payroll service provider of the new bank account holding PPP loan funds for disbursement of payroll.

Forgiveness Applications

For PPP loans of $150,000 or less the SBA has made available a simplified one-page forgiveness form. For PPP loans over $150,000, the SBA standard forgiveness application will need to be submitted.

Businesses must apply for forgiveness within 10 months after the last day of the Covered Period to qualify for forgiveness. If a loan forgiveness application is submitted, payments on the loan are deferred for 10 months after the end of the Covered period.

If a forgiveness application is not submitted within the 10 months, payments on the PPP loan will no longer be deferred and the business will be required to begin making payments to the PPP lender. All PPP loans will accrue interest at 1%. PPP loans that were funded before June 5, 2020 will have a maturity date of 2 years and PPP loans that were funded after June 5, 2020 will have a maturity date of 5 years.

This article is intended as a summary only. For additional details on maximizing forgiveness of your PPP loan, please contact Natalya Belonozhko at, Cindy Horenstein at or Steve Horenstein at


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