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Applying for PPP Loan Forgiveness
August 17, 2022
Mature woman handling paperwork at desk with laptop and calculator
Paycheck Protection Program ("PPP")


Updated February 3, 2022

If you received a PPP at any time, you may now be due – or overdue – to file for forgiveness.  This is more than just a procedural headache.  Applying for forgiveness in a timely fashion will help ensure that you don’t end up owing interest on amounts that are ultimately forgiven, so there’s real, cash value to your business.  With two rounds of PPP loans, three forgiveness applications and a long list of eligible expenses, the task can seem overwhelming, but there are a few simple steps that will expedite the process.


A timely forgiveness filing can save you cash, but there are no significant penalties if you’re unable to do so.

  • The forgiveness application does not have to be completed until the maturity of the loan, five years from receipt of funds
  • However, if any of the loan qualifies for forgiveness, you will be charged interest on the full amount until the forgiveness application is processed
  • Sixteen months from receipt is the important deadline to remember.  That is when the SBA will begin to charge interest on the full PPP loan if no forgiveness application has been submitted

Multiple applications - which is right for you

There are now three PPP forgiveness applications.

  • Form 3508S is a one-page application which does not require supplemental calculations or documentation.  It should be used by any recipient of a PPP of $150,000 or less (application and instructions here)

  • Form 3508EZ is available for companies with PPP amounts above $150,000 that did not cut salaries or hourly wages by more than 25% during the covered period compared to the quarter before receipt and also meet either of these criteria:

    • The company did not reduce employee headcount during the covered period, or
    • The business was unable to operate at the same level during the covered period due to compliance with COVID-19 requirements or guidance from Health and Human Services, the CDC or OSHA
    • Application & instructions here 
  • Form 3508 is for all other PPP recipients (application and instructions here)

  • Instructions in languages other than English are available at the SBA website

  • Even businesses using the Form E-Z or 3508S will be required to attest that they meet the criteria, so it’s important to understand the key elements of forgiveness

Completing the Basic Application

Many categories of spending are eligible for PPP forgiveness and you should as many as possible to maximize the amount of the loan forgiven.  However, this doesn’t mean that you necessarily have to collect extensive documentation on the full range of spending.  Instead, a methodical approach will allow you to collect the necessary information and complete the application more efficiently.

Covered period 

The covered period is the time during which payroll and other expenditures are eligible for forgiveness.  It begins on the day the PPP funds were received and continues for 24 weeks.  If you received both first- and second-draw PPP loans, you have two different covered periods.

Start with payroll

Payroll is the most important category of spending for PPP forgiveness. So begin by calculating total payroll spend during the covered period.

  • 60% of the total amount forgiven must be spent on payroll.  So maximizing the payroll component increases the total forgiveness.
  • Since PPP loans are based on 10 weeks of pre-Covid payroll costs and the business has 24 weeks in which to spend the funds, in many cases, payroll costs alone will account for all of the eligible PPP spending, which means you won’t need to worry about calculating and documenting other expenditures.

Fill in the rest

You do not need to document all spending in every category; you simply must account for the total PPP funding.  Once you’ve calculated the total payroll, choose the most readily available, easiest to document costs from other eligible categories to make up the total.  For example, if you received a $50K PPP loan, spent $42K on payroll during the covered period and pay $2000 each month in rent, you can include 4 months’ rent (16 weeks of the 24-week covered period)  to fully account for the PPP total and needn’t worry about any other categories of spending.

In addition to payroll, the other categories of spending eligible for forgiveness are:

  • Business mortgage interest

  • Business rent and lease payments

  • Business utility payments (including electricity, gas, water, telephone, transportation, or internet access for which service began before February 15, 2020)

  • Covered operations expenses (including any business software or cloud computing service that facilitates business operations, product or service delivery, the processing, payment, or tracking of payroll expenses, human resources, sales and billing functions, or accounting of tracking of supplies, inventory, records, and expenses)

  • Covered property damage (related to property damage due to public disturbances that occurred during 2020 that were not covered by insurance)

  • Covered supplier costs (payments to a supplier of goods that are essential to the operations of the business, made pursuant to a contract, order, or purchase order in effect prior to the beginning of the Covered Period)

  • Worker PPE or capital expenditures made to comply with guidance from the CDC, OSHA or HHS

Know where to apply

Most PPP recipients will submit the forgiveness application to the lender which originally made the loan.  

  • Lenders typically have PPP portals which allow for online application.  The application data will be based on the SBA forms listed above, but make sure you are familiar with your lender’s portal and requirements.

  • Some lenders have chosen to participate in the SBA’s Direct Forgiveness Portal.  Registration is required.  Instructions are available here.

PPP loan terms

While forgiveness is attractive, PPP recipients should be aware that amounts not forgiven will convert into a loan at generally attractive terms which can be repaid at any point.  PPP loan terms are:

  • Interest rate: all PPP loans carry a 1% interest rate

  • Deferral period: no interest payments are due until the date at which the SBA approves the amount to be forgiven (unless no application has been filed within 16 months – or 10 months from the end of the covered period – as explained above).  This ensures that applicants will not owe interest on PPP amounts that are ultimately forgiven

  • Maturity: all PPPs issued after June 5, 2020 have a 5-year maturity. Those issued earlier have the original, 2-year maturity.  However, borrowers can negotiate directly with lenders for a longer maturity

Definitions, Calculations and Advanced Topics

Note: for simplicity, “covered period” in this section refers to APCP, if used

Full Time Equivalency (“FTE”) Calculation

The purpose of the FTE calculation is to ensure that headcount remains at or is restored to pre-crisis levels. This is done by comparing average weekly headcount, measured in Full Time Equivalency, or FTE, versus that of a reference period.  The actual calculation is more complicated, involving choices of methodology and reference period

  • FTE calculation and Safe Harbor: Borrowers do not have to complete the FTE reduction calculation if they meet any one of these criteria:

    • No reduction in headcount between January 1, 2020 and the covered period
    • Unable to operate between February 15 and the end of the covered period at the same level of activity as prior to February 15 due to compliance with HHS, CDC or OSHA directives or guidance
    • FTE is restored to February 15 levels by December 31, 2020 (Safe Harbor 2) 
  • Reference period: The borrower can choose to compare covered-period headcount to:

    •  February 15 to June 30, 2019
    • January 1 to February 29, 2020, or
    • in the case of seasonal employers, either of the preceding periods or any consecutive 12-week period between May 1, 2019 and September 15, 2019 
  • Calculating headcount (FTE): Borrowers can choose to either:

    • Calculate FTE on an hourly basis for all employees by dividing the hours worked each week by 40.  (This number can not exceed 1.0)
    • Designate employees who work 40 hours or more per week as full time (1.0 FTEs) and all those who work less than 40 hours as part-time (0.5)

Salary / Hourly Wage Reduction and Safe Harbor

Forgiveness levels will be reduced if the borrower has cut salary or hourly wage rates by more than 25% compared to January 1 - March 31, 2020.  (This only applies to reductions in pay rates themselves; employee pay reductions due to fewer hours worked are captured by the FTE calculation).  The process works as follows:

  1. Determine if salaries or wages have been reduced by more than 25%

  • Each employee’s average salary or hourly wage for the covered period or APCP is listed, as well as the rate for January 1-March 31
  • The covered period rate is divided by the Jan-March rate.  If the result is 0.75 or higher, there is no reduction.  If it’s lower, borrowers must complete Step 2.     

2.  Determine if Safe Harbor is met: this applies only to those individual employees whose salary or wages were reduced by more than 25%.  

  • First, the employee’s average salary or hourly wage as of February 15 is compared to the average for February 15 - April 26.  
  • If the February-April rate is lower than the February 15 level, the borrower then compares levels at year end.  If the December 31 levels are equal to or higher than those at February 15, the Safe Harbor has been met .

3.   Calculate the Salary / Hourly Wage reduction: this applies only to employees showing a reduction of more than 25% in Step 1 and who did not meet the Safe Harbor in Step 2

  • The average salary during the covered period or APCP is subtracted from 75% of first quarter 2020 salaries.  
  • For hourly employees, this is then multiplied by the average hours worked per week from January 1 - March 31, 2020 to achieve a weekly total
  • The resultant totals are then converted to 8- or 24-week totals based on the covered period.  For salaried employees, the total is divided by 52 to achieve a weekly total
  • The weekly total is multiplied by 8 or 24, as appropriate, to calculate the total covered-period reduction

Other Advanced topics

  • Alternative Payroll Covered Period (“APCP”): Electing to use an APCP may make it easier for borrowers to use normal pay period data for the forgiveness application

    • As explained, the standard covered period begins on the date funds are received
    • The APCP allows borrowers to instead choose to begin payroll calculations beginning with the first day of the next payroll period.  
    • For example, if a borrower’s standard pay period runs from Sunday thru Saturday and PPP  proceeds are received on Monday, April 20, the borrower could elect to use an APCP beginning Sunday, April 26
    • The APCP is likely to be attractive to borrowers with weekly or bi-weekly pay periods, although it may be preferable for others as well  
  • Incurred but not paid: Borrowers are also allowed to include payroll and other eligible costs that are incurred but not yet paid during the covered period, as long as they are paid on or before the next regular due date.  

    • This allows for borrowers to include payroll, rent, mortgage or utilities that reflect operations during the covered period, but are actually paid soon thereafter
    • For example, if rent is paid monthly on the first day of the following month, a borrower whose covered period ends September 15 could include half of September’s rent, even though the payment is made on October 1, after the end of the covered period  
  • Payroll costs: include gross salary, wages and tips, gross commissions, paid leave (vacation, family, medical or sick leave - excluding leave covered by the Families First Coronavirus Response Act), and allowances for dismissal or separation paid or incurred during the Covered Period or the APCP

  • Owner compensation: the forgivable portion of amounts paid to owner-employees, self-employed individuals, independent contractors or general partners is capped at the lower of $20,833 (the 2.5-month equivalent of $100,000 per year) or the 2.5-month equivalent of their 2019 compensation

  • Eligible rent and mortgage: must reflect obligations in place prior to February 15, 2020.  Eligible mortgage payments include mortgage interest only; prepayments of principal are not eligible.

  • Eligible utilities: include business payments for electricity, gas, water, telephone, transportation, or internet access on services begun before February 15, 2020

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Copyright © 2023 SCORE Association,

Funded, in part, through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.

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