Paycheck Protection Plan Forgiveness

Article Posted on 04/13/2020

Now that you’ve applied for the Paycheck Protection Plan it’s time to start shifting your focus on how to ensure the loan is forgiven.  We’d like to go over the requirements for forgiveness. The bank should give you a form to report how the funds were used for the 8-week measuring period and explaining how to ensure your compliance for forgiveness.  

The 8-week period begins the day you receive the first loan disbursement from your bank. Let’s say you received the check on April 3rd, in that case the eight week period would run from April 3rd to May 29th.  

Facts to keep in mind:

  • You have 8 weeks to spend the money on qualified expenses to have them count in your forgiveness calculations.
  • 75% of total loan must be spent on payroll costs
  • Non-payroll costs are limited to 25% (rent, utilities, mortgage interest)
  • You have until June 30th to restore wages. (both wage level and number of full time employees)

Forgiveness is reduced by: 

  1. Reduced workforce – if average number of Full Time Equivalent employees decreases during the 8-week measurement period.
    1. Calculate average number of employees for the 8-week period & compare to
    2. Number of employees from 02/15/19 to 06/30/19 or 01/01/20 to 02/29/20.

    *Note - (attached is guidance on how the SBA calculates the number of employees. Please confirm with your bank as this guidance continues to develop.)

     Example: Let’s say you had 5 employees from 1/1/20-2/29/20 and in the 8-week period you had 2 employees. Due to the reduced workforce only 2/5ths would be  forgiven. You’d have to pay back 3/5th on a 2-year term. (this example assumes you spent more than 75% on payroll, and wages were higher than the most recent quarter.)

  1. Reduced wages – The total reduction in salary during the 8-week period of an employee earning less than $100,000 per year by more than 25% when compared to the most recent quarter before the 8-week period began.
    1. In our example the lookback would be these dates by my estimation 01/09/2020 to 04/02/2020. Total wages during this time would be compared to
    2. Total wages paid during 8-week measuring period.
    3. If the difference in wages is greater than 25% than it is a dollar for dollar reduction in the forgiveness. 

       *Note - if employers restore full-time employment and salary levels by 6/30/20, then they will not have a reduction in the forgiveness amount. 

It is our understanding that you must pass both above tests for forgiveness. Be sure to talk to your banker about this requirement, and to confirm your measurement periods, and comparison periods for loan forgiveness.


Additional clarification and guidance continue to be issued by the SBA and Treasury. We'll post additional information as it becomes available. 


More Info 


Kopsa Otte
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