Get an estimate of how much of your Paycheck Protection Program loan will be forgiven.
PPP loan forgiveness is determined through calculations with several factors, each of which is outlined below.
The PPP loan amount is the total amount awarded to a borrower for their PPP loan. That amount was calculated based on 2.5 times a borrower’s average monthly payroll cost during the covered period.
Payroll costs for the loan forgiveness calculations are the portion of the PPP loan amount used to cover payroll costs during the 24-week covered period following disbursement of the loan.
Following SBA guidance on allowed uses of the loan, no more than 40% of the PPP loan amount can be used toward mortgage interest, rent/lease, and utility costs. Payments toward mortgage interest, rent or lease payments, and utility payments incurred during the 24-week covered period can be included in PPP loan forgiveness in these fields. Payments toward a mortgage principal are ineligible and should not be included.
Your PPP loan forgiveness amount will be awarded based on one of 3 calculations: the modified total, the payroll cost 60% requirement, or the total PPP loan amount. According to SBA guidance, the least of these 3 calculations should be used as the loan forgiveness amount.
The modified total will be used as a borrower’s PPP loan forgiveness amount:
For the 60% payroll requirement to be used as the loan forgiveness amount, a borrower must meet the following requirements:
Based on guidance from the SBA, it is anticipated that full forgiveness of the PPP loan amount will be uncommon. If a borrower chose to take out a smaller loan amount that would only cover their payroll costs during the covered period and not mortgage interest, rent/lease payments, or utility payments, the borrower may be eligible for forgiveness of the total PPP loan amount.
Let’s review some common questions about terminology and requirements regarding PPP loan forgiveness.
Due to an extension under the Paycheck Protection Program Flexibility Act (PPFA), the covered period refers to the 24-week period following disbursement of the loan or December 31, 2020, whichever date comes first.
Borrowers who received a loan prior to June 5, 2020, may opt to use the “alternative covered period,” meaning the borrower can opt to use an 8-week period instead of the 24-week period. This 8-week period can begin either on the date the borrower receives the loan or on the first day of the pay period immediately following the receipt of the PPP loan.
Full-time equivalent employees (FTEs) is a calculation based on the hours worked for both full-time and part-time employees over a workweek. If an employer has a 40-hour workweek, an employee that works 40 hours during that week is 1.0 full-time equivalent employee.
There are 2 methods for calculating an individual who has worked less than full-time:
The reference period refers to the time period used to calculate a borrower’s PPP loan amount. The reference period is a period prior to receipt of the PPP loan used as a baseline in calculating the number of FTE a business may have.
The majority of businesses have 2 options; February 15, 2019 – June 30, 2019 OR January and February 2020. If you have a seasonal business, you get a third option—any consecutive 12-week period from May 1, 2019 – September 15, 2019.
60% of the PPP loan amount must be used toward payroll costs. No more than 40% of the forgiven amount can be used for non-payroll costs like mortgage interest, rent, or utilities. This requirement was originally 75% and was reduced to 60% under the PPPFA.
For most borrowers, a portion of their PPP loan amount will be forgiven. In some cases, the full PPP loan amount may be forgiven. Borrowers should not anticipate full forgiveness of the PPP loan amount.