Your Guide to PPP Loan Forgiveness

(Updated: 4/24/20) On Thursday, April 23rd, the House approved a $484 billion package to help small businesses. This includes $310 billion for additional Paycheck Protection loans. The SBA has yet to re-open the application process. We will continue to update this post as we learn more.

 The Xendoo team is here to help with getting your books caught up, preparing and filing your taxes, or just to talk about the relief efforts available. Click here to book a no-cost, no-commitment consultation.

Before we get started, here are the resources we’ve published about the Paycheck Protection Program:

We’ve heard from many business owners who are looking for guidance on how to ensure their PPP loan is 100% forgiven. We’re sharing our guidance based on what we know from the U.S. Treasury.

Approved expenses (payroll, mortgage interest, rent, utilities) are eligible for forgiveness, however, the following conditions apply:

  1. 75% of your loan must be used for payroll costs. This means at least 75% of the funds provided must be used for payroll. This does not include payments made to independent contractors.
  2. You must maintain the total number of employees on your payroll. 
  3. Your funding must be used over eight weeks of coverage. Eligible expenses are those that take place over eight weeks starting from the day the first payment was made by your lender (may or may not be the date you signed your loan agreement.) An easy example to reference: if your loan gets deposited in your bank account on May 1st, you can only use the funds on expenses incurred during the 8 weeks following May 1st.
  4. You must maintain at least 75% of the total salary paid to your employees. This is going to be individually assessed for each employee (only employees that did not receive more than $100,000 in annualized pay in 2019.) This means that employees pay over the 8 weeks must be at least 75% of their total pay received during the most recent quarter in which they were employed. If their pay is less than 75% of the pay they received previously (in the most recent quarter), the eligible amount for forgiveness will be reduced.
  5. Rehiring: you can rehire any staff that was laid off or furloughed and reinstate pay that was decreased by more than 25% to meet the requirements for forgiveness. Businesses will have until January 30th to do so.

How do self-employed individuals prove their PPP funds were used as intended?

Those that are self-employed are entitled to use their PPP loan to replace lost compensation due to the impacts of COVID-19. However, the full amount is not to be used entirely to replay pay. Eight weeks’ worth of your 2019 net profit will be eligible for forgiveness.

Self-employed individuals that have mortgage interest, rent, or utility expenses must have claimed or be entitled to claim a deduction for those expenses on your 2019 Schedule C to claim them for forgiveness.

How do you apply for PPP loan forgiveness?

Each lender will be processing forgiveness applications. Your lender is going to be your go-to for instructions on how to apply for forgiveness and when to apply for forgiveness. Your lender will be required by law to provide you with a response within 60 days.

What do you need to apply for PPP loan forgiveness?

Each lender may have specific requirements on what is needed to apply for forgiveness. However, the following documents are required to provide alongside your PPP forgiveness application.

  • Documentation verifying the number of full-time equivalent employees on the payroll, including their pay rates, for the periods used to verify you met the staffing and pay requirements.
    • This includes:
      • Payroll reports (from your payroll provider)
      • Payroll tax filings (Form 941)
      • Income, payroll, and unemployment insurance filings from your state
      • Documents verifying retirement and health insurance contributions
  • Documentation verifying your eligible interest, rent, and utility payments (canceled checks, payment receipts, account statements)

For sole proprietors who do not have payroll through a payroll provider, you can have eight weeks of the loan forgiven as a replacement for lost profit, however, you will need to provide documentation. Documentation must be for the remaining two weeks’ worth of cash flow, proving you spent it on mortgage interest, rent, lease, and utility payments.

How much of my loan will be forgiven?

The U.S. Treasury outlines loan forgiveness as follows: You will owe money when your loan is due if you use the loan amount for anything other than payroll costs, mortgage interest, rent, and utility payments over the 8 weeks after getting the loan. Due to the likely high subscriptions, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs. You will also owe money if you do not maintain your staff and payroll.

  • The number of staff: Your loan forgiveness will be reduced if you decrease your full-time employee headcount.
  • Level of payroll: Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.
  • Re-hiring: You have until June 30, 2020, to restore your full-time employment and salary levels for any changes made between February 15, 2020, and April 26, 2020.


This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

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11 replies
  1. Jim Landon
    Jim Landon says:

    Just so I understand-
    “75% of your loan must be used for payroll costs.”

    So does that mean that if I only get to 73% of the loan being payroll costs, then I will get no forgiveness?
    Thanks very much for your information about this?

  2. Jen
    Jen says:

    We received a loan of $26,042. Are we able to pay our employee in one lump sum or two weeks worth of pay or does this money have to be sent out over 8 weeks in payments of $3255 each? (We only want to use the money for payroll so we can get it all forgiveness)

  3. miguel de los santos
    miguel de los santos says:

    No, if you only get to 73%of the loan being payroll costs, the maximum percentage of your loan forgiven will be 4/3 of 73 percent or 97.333 percent of the loan (i.e. 73% is 75% of 97.333%.

  4. Lisa Jenkins
    Lisa Jenkins says:

    Can I use the loan for business expenses and just plan to repay the expenses not granted forgiveness?

    Also, I currently am receiving state unemployment benefits and would prefer those benefits over the PPP payroll replacement. Is it possible to simply repay the 75% of the loan that would have gone toward payroll and then be granted forgiveness for the 25% which is going toward my business lease?

    If I keep my unemployment benefits and receive the PPP with the intention to repay is that okay?

  5. Blake
    Blake says:

    The “owner compensation” will be forgiven, but the remainder of the loan not used for eligible expenses will need to be repaid. Hope this helps.

  6. Blake
    Blake says:

    I was not able to find the answer to this question. It may make sense to issue payroll as it has been previously.

  7. Dan Smithfield
    Dan Smithfield says:

    I’m an S Corp and pay myself as a W2. I am the only full time employee. I have 5 part time employees. I received the PPP, and the issue I’m running into is that UI is a far better option for my part timers. Are we able to collect UI until the 7th week, and then disperse the funds in the 8th week as a lump sum? Or, do we have to pay an equal amount each week, risking the chance of the state denying UI benefits?

  8. Jayne Filler-Lakickas
    Jayne Filler-Lakickas says:

    can I bring my employees back from unemployment on the 7th week of the 8 week period and pay them a lump sum paid in advance for future work?

  9. Randall
    Randall says:

    My 2019 Schedule C income was over $100,000 so my PPP approved loan is $20,833. If my owner compensation replacement is limited to 8 weeks at max of $100,000 annually (total of $15,385) then I am spending only 73.8% of loan proceeds on payroll. Is this correct? Will it be a problem for forgiveness since it is less than 75%?

  10. Harold Lichty
    Harold Lichty says:

    Can i pay my people over 7 weeks, rather than 8 & just bump up their salaries to meet the requirements of 75%. I cant get the payroll up and running until the next payroll period.

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