PPP Loan Forgiveness: How to Get SBA Loan Forgiveness

PPP Loan Forgiveness

When the CARES Act was first passed by the federal government in March 2020, the Paycheck Protection Program, and especially Paycheck Protection Program loans, represented a lifeline for many small business owners facing closures or restrictions due to the COVID-19 pandemic. Now, many areas of the United States have partially or fully reopened and you may look to get your PPP loan forgiven before your payments come due (10 months after the end of the covered period). If you aren’t quite sure where to start, Credibly’s step-by-step guide can help to answer some of your top questions about the process.

Step 1: Determine if you Qualify for PPP Loan Forgiveness

The first step to receiving PPP loan forgiveness is to determine if you actually spent your loan on expenses that are forgivable. The Small Business Administration (SBA) will only forgive your loan if you spent at least 60% of the total loan amount on qualified payroll costs, and only payroll costs are forgivable. Non-payroll costs, such as the cost of goods and services, are not forgivable. However, “payroll costs” isn’t quite as limited as it may seem.

Qualified Expenses for PPP Loan Forgiveness

Several expenses beyond just employee wages are included in “payroll costs.” Here is a full list:

  • Payroll expenses, including salaries, paid time off, family or medical leave, sick leave, health insurance and other benefits
  • Lease payments or mortgage interest payments, as long as the lease or mortgage was signed before February 15, 2020
  • Utility payments, including water, electricity, gas, phone service or internet service. Transportation expenses are also considered utilities, which could be important if you offered delivery of your product or service during COVID-19.

If you spent over 60%, but not 100%, of your PPP loan proceeds on payroll costs, you will have to take a forgiveness reduction. Rather than receiving a full forgiveness of your PPP loan, a percentage of your loan will be forgiven and you will make payments on the remaining balance. Still, any loan forgiveness amount is beneficial to your small business and worth the time investment in completing an application, even if you spent a good chunk of your PPP loan on non-payroll expenses.

Questions to Determine if You Qualify for Forgiveness

Before you take the time to complete a PPP loan forgiveness application, check your books to determine if you qualify for loan forgiveness. Ask yourself these questions:

  1. Did I spend 60% of my loan amount on qualified expenses during the 24 weeks following the payment of my loan from my lender?*
  2. Did I retain the same number of full-time equivalent employees on the payroll, unless an employee was fired with cause, voluntarily left the company or voluntarily asked for a reduction of hours?
  3. Did I maintain at least 75% of salary for each employee making less than $100,000?
  4. If I laid off employees after February 15, 2020, due to the coronavirus, did I make a good faith, written offer to rehire those employees at the same hours and pay after receiving my PPP loan?

If you meet these requirements and have the documentation to prove it, you are eligible for loan forgiveness for the amount of qualified expenses and should fill out an application.

*Note: If you closed on your loan prior to June 5, 2020, you can elect to adhere to the eight-week covered period in the original Paycheck Protection Program instead of the 24-week period introduced by the Paycheck Protection Program.

Step 2: Complete Your PPP Loan Forgiveness Application

The good news is that to determine if you qualify for PPP loan forgiveness, you will have probably gathered all of the necessary documentation to submit a PPP loan forgiveness application form. You will need:

  • Payroll reports for all of your employees, including payroll tax forms
  • Receipts or other documentation for other qualified expenses, such as rent, mortgage interest or utility expenses
  • A copy of your original loan documentation

It is important to know you need to prove that you maintained 75% of salary on an individual basis, so you will need payroll reports that specifically show the salary of each employee. A general report showing total payroll paid will not be sufficient.

Complete the PPP loan forgiveness application from the Department of Treasury. The application is meant to function as a worksheet, where you can enter the numbers from your records and follow the worksheet to determine your forgiveness amount. If you run into questions while completing the loan forgiveness application, reach out to your lender.

Step 3: Submit Your PPP Loan Forgiveness Application to Your Lender

Lenders are responsible for conducting an initial review of your PPP loan forgiveness application and issuing an approval or denial recommendation for the application. Lenders have 60 days to conduct this review from the time you submit the application. If you are missing information or documentation, your lender may allow you to submit additional documentation or resubmit a corrected application. However, if you submit a PPP loan forgiveness application and you do not meet all the qualifying criteria, your lender will have no choice but to recommend a denial of forgiveness.

If you are denied loan forgiveness, your loan becomes a loan with a five-year term with a 1% interest rate. You will need to start making payments 10 months after the end of your covered period (the 24 week period following your receipt of the loan).

The good news is that these loan terms are favorable for businesses, compared to a typical SBA loan. However, missing out on forgiveness dollars can be a tough situation for businesses, especially if business is still tough due to COVID-19, so working with your bookkeeper and lender during the forgiveness application process can save your business a significant amount of money in the long run.

Step 4: Wait for a Final Decision by the SBA

If your lender approves your PPP forgiveness application, the application will be sent to the SBA for a final decision. The SBA then has 90 days to review your application. If the SBA approves your forgiveness application, the amount of forgiveness will be subtracted from the total loan amount, which could be the total amount of your initial loan proceeds or a portion of it.

If you disagree with either your lender’s initial review and recommendation, you can ask the SBA to review or appeal the SBA decision.

Additional Considerations: Sole Proprietorships and Partnerships

If you don’t have any employees, your PPP loan forgiveness will look different, but sole proprietors and partners without employees are eligible for PPP loan forgiveness. In many ways, your forgiveness application may actually be easier to complete than for business owners who do have employees.

Sole Proprietors

Sole proprietors could apply for a PPP loan worth 2.5 months of their net profit for 2019. If you did this, you can apply for forgiveness of 8 weeks worth of your net profit as compensation. However, for the remaining half month’s worth of loan money, you will need to provide documentation of qualified expenses, such as rent or utilities. These qualified expenses must have been listed as business expenses on your 2019 taxes, so you cannot submit your home internet bill or personal mortgage interest unless you have a record of a home office on your 2019 tax forms.


The PPP loan amount issued to general partners without employees is based on net earnings for each partner. For PPP loan forgiveness, you are eligible for 8 weeks of those average net earnings amount from your PPP loan, as well as other eligible expenses like rent, utilities and mortgage interest.

Note that there is a cap on eligible net earnings, but you should have encountered that when you applied for the PPP loan, which will help you get forgiveness for most or all of your PPP loan.

Key Paycheck Protection Program Resources

As you go through the process of submitting your application for PPP loan forgiveness, you may need to reference some of these resources.

PPP Loan Forgiveness Application: There is only one PPP Loan Forgiveness application, even though you submit through your individual lender. This application is available to download directly from the Department of Treasury or the U.S. Small Business Administration.

SBA FAQs about PPP Loan Forgiveness: The SBA compiled a list of frequently asked questions about the PPP loan forgiveness process. If you have a question, there’s a good chance this guide from the SBA can help answer it.

Paycheck Protection Program: Visit the SBA’s central Paycheck Protection Program page to learn more about PPP loans.

Related Pages

Paycheck Protection Program: Credibly’s Paycheck Protection Program informational page.

CARES Act Guide: Credibly’s guide to the CARES Act and what small business owners need to know.

Coronavirus and Small Business: A guide for small business owners navigating the coronavirus pandemic.

Economic Injury Disaster Loans (EIDL): Learn more about applying for an EIDL if your business needs additional funding to weather the COVID-19 storm

Author Bio:

Jeffrey Bumbales
Director, Marketing & Strategic Partnerships at Credibly