Your Business Credit

How the latest PPP guidance applies to your business

Earlier this month, the SBA provided clarification on loan forgiveness for a number of specific costs and other areas


If you’re thinking about submitting your application for forgiveness of a PPP loan, you may want to review the SBA’s new guidance on forgiveness released on Aug. 4. Here’s an overview of what it covers, including payroll and non-payroll costs.  

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If you’ve been thinking about submitting your application for forgiveness of a Paycheck Protection Program loan, you may want to wait until you look over the SBA’s new guidance on forgiveness on Aug. 4, issued in consultation with the Treasury Department.

Because the loans are potentially eligible for full forgiveness, it is important to understand and follow the rules.

For background, the PPP was created under the Coronarvirus Aid, Relief and Economic Security (CARES) Act. It offers small businesses a forgivable loan to cover eight weeks of payroll, plus another 25% of that amount for business rent, business mortgages, business mortgage interest or business utilities, provided the company kept its employees on payroll or called them back.

There are several areas the guidance has clarified with regard to loan forgiveness.

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What the new PPP guidance covers

Businesses with no employees

For businesses that don’t have W2 workers, the guidance says the loan accrues from the date of dispersal for the loan. However, payments are not due until the forgiveness amount has been determined; the borrowers are only responsible for accrued interest on any unforgiven portion of the loan.

These businesses are able to use loan forgiveness form 3508EZ or an equivalent from their lender, according to the guidance.

Payroll costs

To qualify for forgiveness, the loan says payroll costs must have been incurred during either an eight or 24-week covered period the borrower elects but paid after the covered period and before the next regular payroll date – or incurred before the covered period but paid during the covered period. The borrower must submit the application for forgiveness within 10 months of the covered period’s completion.

If an employer needs to prove a good-faith effort in trying to rehire an employee who was furloughed, the guidance says the company must show a written offer to rehire, a written document of the offer’s rejection and a written record of efforts to hire a similarly qualified person. The business must also have notified the state unemployment office of an employee’s rejection of the offer to be rehired.

Cash compensation

Employers must use the gross amount of employees’ pay – prior to deductions for taxes and employer contributions to group benefits – not the net amount that is paid to employees in their paychecks. Cash compensation includes tips, commissions, bonuses and hazard pay. The maximum forgivable amount per employee is $100,000 on an annualized basis.

Health benefits

Employer costs for group health benefits during the eight or 24 weeks are considered payroll costs eligible for loan forgiveness. However, the employee portion of the health care premium does not count for loan forgiveness. The guidance goes into greater detail on this.

See related: How to get part of your SBA loan forgiven under the CARES Act

Retirement benefits

Employer contributions for employee retirement benefits that are paid or incurred during the eight or 24 weeks count as payroll costs eligible for loan forgiveness. Employee contributions are not eligible. The guidance also provides greater detail on this.

Forgiveness of the owner’s pay

The amount of the owner’s compensation that is forgivable is capped at $20,833 across all businesses in which he or she has an ownership interest. (The maximum is $15,385 if borrowers received their PPP loan before June 5 and opt to use an eight-week covered period).

The law also details the formulas used for forgiveness for C corps and S corps, general partners and self-employed Schedule C filers.

Non-payroll costs

To qualify for forgiveness, the loan says non-payroll costs must have either have been incurred during the eight or 24-week covered period and paid on or before the next billing date – or incurred before the covered period and paid during the covered period.

The guidance also states that payments on mortgages and leases that existed before Feb. 15, 2020 and were renewed or refinanced after that are eligible.

It notes that eligible utility payments for electricity distribution and supply charges are forgivable regardless of whether they are billed separately.

The upshot

It is a good idea for all borrowers in the PPP program to keep an eye on the SBA’s website for updates to the rules. They’ve been in flux since the program was introduced.

Under interim final rules issued on May 22, small business owners were allowed eight weeks from the time the loan was disbursed or from the first day of the payroll period in the covered cycle to use the money or the loan would not be forgiven.

Later, under the Paycheck Protection Program Flexibility Act of 2020, signed by the president on June 5, the government extended the “covered period” from eight to 24 weeks of origination or Dec. 31, 2020, whichever is sooner. The law also said owners could deploy up to 40% of the money for eligible costs other than compensation – up from 25%.

See related: How to prepare your business for future pandemic aid

Bottom line

It’s very likely there will be changes again. Make sure to stay in touch with your accountant to  ensure you receive the maximum loan forgiveness for which you are eligible.

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The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

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