How to Calculate PPP Loan Forgiveness and Apply

Learn how to calculate your Payment Protection Program Loan Forgiveness and how to apply for forgiveness.

At the start of the coronavirus (COVID-19) pandemic, the U.S. government established the Paycheck Protection Program (PPP) to help small businesses with 500 employees or fewer keep their employees on payroll during the crisis. The funds are 100% forgivable if you follow the loan forgiveness requirements carefully.

The Small Business Association (SBA) recently released preliminary forgiveness guidelines for PPP loans, highlighting the overall process. Once you (the borrower) complete the loan forgiveness application, the lender has up to 60 days to review it and verify the information submitted. Any unforgiven loan amount issued before June 5, 2020, will be treated as a two-year loan while those issued after June 5, 2020, will be treated like a five-year loan. Both have a 1% fixed interest rate.

Here’s what to expect in the loan forgiveness application process and how to calculate your approximate loan forgiveness amount.

What do you need for your PPP Loan Forgiveness Application
The PPP Loan Forgiveness Application is extensive and detailed, so make sure you have the following on hand:

  1. Your business’s legal name, DBA, trade name and business TIN (EIN, SSN)
  2. Your business’s address, phone, primary contact, or email address that matches the info on your loan application
  3. The SBA PPP loan number assigned by your lender
  4. The lender’s PPP loan number
  5. Your PPP loan amount
  6. The number of employees at the time of your loan application
  7. The number of employees at the time of your forgiveness application
  8. The date you received your PPP funds from your lender or the date you received your first PPP loan disbursement
  9. The EIDL advance amount if you received one
  10. The EIDL application number if you applied
  11. Your business’s payroll schedule
  12. Your covered period (either the 8-week or 24-week period after your loan was disbursed)
  13. Any alternative payroll covered period, if applicable

How to calculate PPP Loan Forgiveness
Before trying to estimate your potential forgiveness amount, make sure you have the dates right for your 24-week “alternative payroll covered period” during which you used these funds. Remember that it starts on the day of loan disbursement from your lender. Let’s say you received funds on April 30, 2020. Your 24-week covered period would end on October 15, 2020.

While lenders will work with their customers individually to calculate loan forgiveness, you can estimate the amount using a loan forgiveness calculator or estimator. Gather the following information from the 24-week coverage period:

  • The loan amount
  • Your eligible payroll costs
  • Your mortgage, mortgage interest, rent, and utility costs
  • Any adjustments for FTE, wage reductions, and EIDL

Even if you’re still in your covered period, you can estimate the upcoming eligible payroll costs to include in your loan forgiveness application.

Once you’ve gathered the numbers you need, start with the amount of PPP loan proceeds you borrowed and used for payroll expenses and other qualified expenses (mortgage, mortgage interest, rent, and utility costs). That’s the maximum you can be forgiven.

From there, subtract the percentage of reduced wages. Do the same for any reductions in the average full-time employees per month, and the average full-time employee percentage reduction. Finally, subtract any funds you received from the EIDL, and that’s your loan forgiveness amount.

For example:
Let’s say you have 10 full-time employees during normal business operations. You borrowed $1,000,000 in PPP funds but only used $500,000 to cover payroll and $250,000 to cover other qualified expenses. Your maximum eligible forgiveness amount would be $750,000 ($500,000 + $250,000).

You reduced employee wages by 30%, so your forgiveness amount is reduced by 30% ($225,000) to $525,000. The remaining $475,000 would convert into a 2-year loan with a fixed 1% interest rate.

For better forgiveness eligibility, consider rehiring and retaining your FTE employees. The PPP loan forgiveness eligibility is based on maintaining your current employees and their wages paid. The quicker you rehire and restore compensation, the higher your chances for loan forgiveness qualification will be. If you have some full-time employees who refuse to return, your loan forgiveness eligibility will not be penalized if you’re able to provide proof of a good faith, written offer of rehire and the employee’s rejection of that offer. However, if you restore full-time employees and wages by June 30, 2020, you may be exempt from certain wage reductions.

Before you begin applying for PPP loan forgiveness, make sure you have all the proper documentation and required SBA and lender information you need. Read the loan forgiveness requirements carefully so you can understand why you may or may not be eligible for PPP forgiveness.

Want to dig deeper?