PPP Loan Forgiveness and Terms

The government’s efforts to help businesses have resulted in generous terms for PPP loans. Borrowers can receive two and a half times their average monthly payroll costs (excluding compensation in excess of $100,000 per employee) incurred 12 months before the date the loan is made (some lenders are simply using 2019 numbers). For example, if your monthly average payroll (excluding compensation in excess of $100,000 salaries) in the last 12 months is $10,000, you may borrow up to $25,000. Additionally, you can include as payroll costs: payment for vacation, parental, family, medical and sick leave (that is not covered by another emergency loan/grant); payment for dismissal or separation; payment for group health care coverage, including insurance premiums; payment for retirement benefits and payment of state and local taxes assessed on employees’ compensation.


Also, you can add to your total loan amount the outstanding amount of any Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020, less any “advance” that is forgivable under an EIDL COVID-19 loan.


The money can be used for payroll (no more than $100,000 annual salary per employee) as well as benefits (including paid sick leave and insurance premiums) and taxes on compensation. Up to 25% of the loan may be used to cover mortgage interest, rent, utilities and interest on pre-existing loans.

The covered expenses have to be incurred from Feb. 15, 2020 through June 30, 2020. Businesses have to have been operating by Feb. 15, 2020.

Any portion of the loan that is not forgiven will carry an interest rate of 1.0% and is due to be paid back within two years. However, payments are deferred for the first six months. There’s no pre-payment penalty.


Borrowers will have their loans forgiven if they use the money for designated expenses. Participants are eligible for loan forgiveness for the amounts spent on authorized expenses over the eight weeks after receiving the loan.


Total payments for payroll over the eight weeks after the loan is disbursed may be forgivable. Mortgage interest, rent and utilities are also forgivable, up to 25% of the PPP loan. (Note that if your loan is forgiven, theses expenses covered by the loan are not tax-deductible, the IRS recently stated in Notice 2020-32.)


To get the entire amount of the loan forgiven (assuming that at least 75% is spent on payroll and the rest on permitted expenses), you must meet two criteria. First, the full-time employee head count cannot decline from average monthly levels during 2019 or during the past 12 months. If your business launched in the second half of 2019, you can use average head counts from January 1, 2020 to February 29, 2020. If your business is seasonal, you can base your monthly averages on numbers from February 15, 2019 or March 1, 2019 to June 30, 2019.


Second, for loans to become full grants, employers cannot cut salaries or wages. If they do, the forgiven amount will be reduced. Employers who already let workers go (between February 15 and April 26, 2020) have until June 30 to restaff.