A PPP Loan Forgiveness Checklist: What You Should Track & Save

Update as of January 26, 2021: This article may no longer be up-to-date. Read this article for the most up-to-date information the most current round of the Paycheck Protection Program.

If you’ve taken out a Paycheck Protection Program (PPP) loan, you likely know that one of the big benefits is the ability to get the loan forgiven in the future. If you’re considering applying for PPP loan funding you should know the entire loan could potentially be forgivable. However, the forgivable amount of your PPP loan will depend on how you use the funds and whether you maintain staff levels and pay. 

You can use this checklist to help ensure you’re on track — and stay on track — when it comes to PPP loan forgiveness and having as much of it forgiven as possible.

Qualifying for PPP Loan Forgiveness

To qualify for any loan forgiveness: 

• You must use at least 75% of your loan for payroll costs. 
• You must spend the money on eligible expenses during the eight weeks after you receive the loan.

The forgivable portion of your loan can also be reduced if you don’t maintain or quickly rehire your employees, or if you reduce employees’ pay by more than 25%. 

Loan Proceeds Can Be Forgiven If You Use the Money For

The total amount you can borrow depends entirely on your payroll expenses. But, all the loan proceeds that you spend on the following types of expenses are covered under PPP loan forgiveness:

• Payroll costs
• Mortgage interest
• Rent
• Utilities

For the mortgage, rent, and utility payments to qualify, the loan, lease, or service must have begun before February 15, 2020. 

There are also several exclusions to PPP loan forgiveness. If you use the money for the following, those amounts won’t be forgiven:

• Prepaid mortgage interest or rent
• Payroll costs for employees whose principal residence isn’t in the US
• Payroll costs for the prorated portion that’s above $100,000 for each employee
• Employer’s side of federal payroll taxes.
• Sick and family leave wages if you received a credit due to the Families First Coronavirus Response Act.

Once You Qualify for a PPP Loan, You Must Spend The Money Within Eight Weeks 

Additionally, only loan proceeds that you spend on qualified expenses during the eight weeks after you receive your loan — which may be later than when you signed your loan agreement — count toward the forgivable portion.

While you can’t prepay mortgage interest and rent payments, consider how the timeline compares to your regular payroll schedule and if you may want to make adjustments. 

The Forgivable Amount is Reduced If

Up to the full loan amount and accrued interest can be forgiven if you qualify for the PPP loan. However, your forgivable amount can also be reduced if:

• You don’t maintain your full-time employees: Multiply the payroll expenses by the average number of full-time equivalent employees during the eight-week period. Divide the result by the average number of full-time equivalent employees from either 2/15/19 to 6/30/19 or 1/1/2020 to 2/29/2020. For seasonal employees, you must use the 2/15/19 to 6/30/19 period. 
• You reduce employees’ wages: Subtract the amount of any wage reductions that are greater than 25% of an employee’s wages compared to their most recent full quarter. This equation only applies to employees who were paid less than the equivalent of $100,000 during any pay period in 2019.

Consult your PPP checklist: If you don’t maintain the average number of full-time equivalent employees or reduce wages, a proportional part of your loan won’t be forgivable. 

On May 3, 2020, the Treasury Department clarified (FAQ 40) that if you previously laid off an employee and then offered to rehire them at the same rate, but the employee declined, that your forgivable amount won’t be reduced. Keep copies of your written employment offer and records of the person’s decision. 

Keep These Documents for the PPP in Order To Apply for Forgiveness

During the following eight weeks, you’ll want to track and keep proof of any payments you make that will qualify you for loan forgiveness. These documents for PPP forgiveness could include:

• Payroll reports, federal payroll tax filings (Form 941), proof of benefits contributions for employees, and state tax filings, payroll, and unemployment insurance forms. 
• Proof of rent or mortgage interest payments, along with copies of your lease or mortgage agreements. 
• Proof of utility payments and forms showing your services began before February 15, 2020.

You may need to provide additional documentation as lenders and the SBA work out the verification and forgiveness process. But, at a minimum, you’ll want to have these documents for PPP loans on hand. 

Applying for PPP Loan Forgiveness 

You may be able to apply for loan forgiveness directly with your PPP lender eight weeks after you receive the loan. Once you apply, the lender has 60 days to review your application and make a decision regarding if you qualify for PPP loan forgiveness.

You won’t need to make any loan payments during this period, as all PPP loan payments are automatically deferred for six months. 

Any amounts that don’t qualify for PPP loan forgiveness will need to be repaid to the lender. The loan payments won’t begin until the end of the deferment period, and the loan will have a 1% interest rate and two-year term. If you want to repay the loan early, there’s no prepayment penalty. 

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