Things you should know to get the principal of your business’s SBA PPP loan forgiven. Here are the key points from the CARES Act and associated guidance for achieving forgiveness.

The myriad of updates and issues raised regarding the SBA’s PPP and forgiveness of those loans are predictably difficult to follow. The transitory nature of the current circumstances offers little certainty that today’s FAQs and regulatory guidance will emplace the systems ultimately governing the program, but the statutory language is set and while the SBA and Treasury have great latitude for implementation of further guidance and rules, there is language that they cannot alter and some of the guidance comments have taken on the proportions of mythic folklore. Taking a look at the language of the CARES act, there are some measures to prepare for and guidelines to adhere to in order to best ensure qualification for forgiveness. And there’s that weird 75% of the funds for payroll guidance from back in April.

We’ll do our best with this notation of the source material so you know what sections people are citing when they talk about different allowable expenses and methods and criteria for determining forgiveness of these loans without quoting the text directly, and we’ll try to keep it updated as new guidance comes out to help borrowers under the Paycheck Protection Program understand what the regulations, statutes, and other guidance are saying about how borrowers can get their PPP loans forgiven.

As the statutory language of the CARES Act details, you will be filing your application for forgiveness with the lender controlling your loan following your 8-week period. Under the Act, the lender needs to make a determination regarding your eligibility for forgiveness of the your PPP loan principal within 60 days of your application for forgiveness.

You will be certifying in the application that you have spent the funds on allowed uses. You will likely also be certifying that 75% or more of your loan was spent on payroll.

As stated in the statutory language below, you will need to document the use of the funds as part of the proof for the application and the certification. This will involve proving things like confirming the amount of full-time employees during the period and their wages, and payments of items like your rent, mortgage interest, utilities. So collect receipts and copies of your checks and other things like credit card statements and payroll information.

But we’ll get to that. The first issue you should concern yourself with is what are the allowable expenses under the SBA’s PPP.

Here is the definition of allowable uses from the CARES Act:

(F)Allowable uses of covered loans

(i)In general – During the covered period, an eligible recipient may, in addition to the allowable uses of a loan made under this subsection, use the proceeds of the covered loan for—

  • (I)payroll costs;
  • (III)employee salaries, commissions, or similar compensations;
  • (V)rent (including rent under a lease agreement);
  • (VI)utilities; and
  • (VII)interest on any other debt obligations that were incurred before the covered period.

But that’s not the total calculus as you’ll need to keep your employees at pre-crisis levels (more on that below, as well as their wages or salaries above 75% of pre-COVID compensation to ensure the forgivable amount of your principal is not reduced. The calculation for the amount of loan forgiveness is based on two factors that can impact the forgivable percentage of the principal, the number of employees kept on/re-hired during the period up to June 30, 2020, and the reductions in salary or wages paid to employees during the covered period:

(2)Reduction based on reduction in number of employees

(A)In general




(I)at the election of the borrower—




(B)Calculation of average number of employees


(3)Reduction relating to salary and wages

(A)In general


(B)Employees described


Additionally, you need to know that the reason everyone keeps talking about the fact that 75% of your loan must be spent on payroll expenses is that in the April 15 guidance, the SBA stated (see subsection “r” in that link) that this was a threshold they’d adopted:


So do. Yourself a favor and comply. The benefits of complying also likely mean that you won’t be dipping down on the other two criteria, the number of employees and the amount of their total salary/wages in proportion to their previous compensation.

As for proving that you’ve met these criteria and your record keeping requirements, as we mentioned above they are statutorily mandated and will be part of the application for forgiveness. Keeping track of the expenses and having accurate payroll records is key to the reporting and application mechanisms detailed in the CARES Act for obtaining forgiveness and no forgiveness will be given without adequate documentation:


An eligible recipient seeking loan forgiveness under this section shall submit to the lender that is servicing the covered loan an application, which shall include—

(1)documentation verifying the number of full-time equivalent employees on payroll and pay rates for the periods described in subsection (d), including—

(A)payroll tax filings reported to the Internal Revenue Service; and

(B)State income, payroll, and unemployment insurance filings;


(3)a certification from a representative of the eligible recipient authorized to make such certifications that—

(A)the documentation presented is true and correct; and


(4)any other documentation the Administrator determines necessary.

(f)Prohibition on forgiveness without documentation

No eligible recipient shall receive forgiveness under this section without submitting to the lender that is servicing the covered loan the documentation required under subsection (e).

The SBA is continually updating its FAQs on these topics. Some other interesting points from the SBA’s updated May 3, 2020 guidance (includes points from the prior versions):

Question: Do PPP loans cover paid sick leave?


Question: The amount of forgiveness of a PPP loan depends on the borrower’s payroll costs over an eight-week period; when does that eight-week period begin?

Answer: The eight-week period begins on the date the lender makes the first disbursement of the PPP loan to the borrower. The lender must make the first disbursement of the loan no later than ten calendar days from the date of loan approval.

Question: To determine borrower eligibility under the 500-employee or other applicable threshold established by the CARES Act, must a borrower count all employees or only full-time equivalent employees?

Answer: For purposes of loan eligibility, the CARES Act defines the term employee to include “individuals employed on a full-time, part-time, or other basis.” A borrower must therefore calculate the total number of employees, including part-time employees, when determining their employee headcount for purposes of the eligibility threshold. For example, if a borrower has 200 full-time employees and 50 part-time employees each working 10 hours per week, the borrower has a total of 250 employees.

By contrast, for purposes of loan forgiveness, the CARES Act uses the standard of “full-time equivalent employees” to determine the extent to which the loan forgiveness amount will be reduced in the event of workforce reductions.



Ashley Brandt


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