Calculating PPP Loan Forgiveness

COVID-19 News and Updates | Robert O. Mayer | Apr 14, 2020

The Paycheck Protection Program (PPP) created by the CARES Act provided up to $10 million at 1% interest for a maximum period of 2 years. However, it was created with the intent of companies impacted by the COVID-19 pandemic to retain their employees. Many have filed for the PPP and now must concern themselves with meeting the conditions of loan forgiveness (subject to change).

Provisions for Loan Forgiveness

PPP loans can be forgiven – up to 100% of the borrowed amount – if you meet certain criteria, including:

  1. Loan proceeds are used to cover payroll costs or the qualifying expenses of mortgage interest, rent paid on leases, and utility costs that are paid over the eight-week benefit period that begins the day the loan is made;
  2. Employee headcounts are maintained;
  3. Compensation levels for employees earning $100,000 or less are maintained; and
  4. No more than 25% of the total loan amount is used on qualified, non-payroll expenses.

The last point is critical: your PPP loan is only eligible for 100% forgiveness if payroll costs account for at least 75% of the loan amount, with no more than 25% covering other costs. Qualified expenses include:

  1. Payroll Costs: These include salary, wages, and commissions (up to a max annualized amount of $100,000 per employee), group health benefits, retirement benefits, medical or sick leave, and any state or local taxes assessed on employee compensation. Severance pay and bonuses, subject to the annualized cap and further SBA guidance, should also be included in payroll costs.
  2. Interest on any mortgage obligations, provided the mortgages originated prior to February 15, 2020.
  3. Rent on any lease agreements for any leases in force prior to February 15, 2020.
  4. Utilities, including electricity, water, gas, telephone/internet, and transportation that were placed into service prior to February 15, 2020.

Applying for PPP Loan Forgiveness

To receive loan forgiveness, a borrower must apply. The following information will be required to be submitted to your lender:

  1. A formal application (not yet released by the SBA)
  2. Documentation verifying the number of full-time equivalent (FTE) employees on payroll and pay rates for the applicable 8-week period, including payroll tax filings to the IRS and unemployment insurance filings and payroll registers
  3. If your payroll is with a PEO, you should save your payroll invoices supporting the payroll costs, employee benefits, and retirement benefits paid
  4. Documentation supporting other qualified, covered expenses (mortgage interest, rent on leases, and utilities), including canceled checks, payment receipts, and invoices
  5. Certification that the information presented is true and correct, and the amount of forgiveness requested was used to retain employees and/or making payments of qualified covered expenses (mortgage interest, rent on leases, and utilities)

The SBA may determine that additional documentation may be needed. Your lender will make a determination as to the amount of loan forgiveness, no more than 60 days from the date the application is received.

If you have any questions regarding loan forgiveness, please contact the Prager Metis Crisis Management team at