Back to Perspectives

Forging a Path Forward: Maximizing Paycheck Protection Program Loan Forgiveness


With the announcement that the Payroll Protection Program (PPP) has been funded a second time, many small businesses that did not receive funding the first time through are rushing to fill out applications and get much needed emergency funding through the Small Business Administration’s program.

For companies that have already received PPP funding, or expect to in this second wave, now is the time to focus on meeting the conditions for maximal loan forgiveness. In the following we will discuss what the PPP loans are intended for, how to use them for those purposes, and finally, how to document that use when applying for forgiveness.

The basics of PPP

In response to the widespread economic fallout of the COVID-19 pandemic, federal legislators introduced the CARES Act, a historically large economic stimulus program. For many businesses, both large and small, the standout from the program was the creation of the Paycheck Protection Program, which offers forgivable loans designed to help struggling businesses retain employees and make other necessary operational costs.

The popular PPP ran out of funds within two weeks of launch – with many small businesses still desperately in need of funds. The program has since been funded a second time, and there may be future waves of funding, depending how long current stay-at-home orders are maintained and the resulting economic distress.

Loans are being disbursed by approved lenders. You can find a complete list of approved vendors here.

You can access the PPP loan application here.

How PPP funds are to be used

The PPP funds have been made available by federal legislators with the primary purpose of helping employers maintain staffing levels and pay for other costs essential to continued operation for the eight week benefit period that begins when the loan is made.

Qualified expenses for PPP loans include:

  • Payroll costs, which include:
    • Salary, wages, and commissions, up to a maximum annualized amount of $100,000 per employee.
    • Note: Severance pay and bonuses are subject to the annualized cap and should be included in payroll costs.
  • Group health benefits, retirement benefits, medical or sick leave, and any state or local taxes assessed on employee compensation.
    • Note: Not applicable if tax credits under FFCRA are taken.
  • Interest on mortgage obligations that originated before February 15, 2020.
  • Rent on lease agreements that were in force prior to February 15, 2020.
  • Utilities, including electricity, water, gas, telephone/internet, and transportation that were placed into service prior to February 15, 2020.

A sample of frequently cited costs that DO NOT qualify as PPP expenses include:

  • Payments made toward the principal portions of mortgages or other debts;
  • Accounts payable;
  • Life insurance payments;
  • Payments of interest on debts established after February 15, 2020;
  • Rent on lease agreements established after February 15, 2020.

Conditions for PPP loan forgiveness

Perhaps the most appealing aspect of the PPP loan program is the offer of forgiveness – up to 100% of the borrowed amount – if you meet specific criteria:

  1. At least 75% of loan proceeds are used to cover the qualifying costs associated with maintaining payroll over the eight-week period that begins the day the loan is made;
  2. Employee headcount levels are maintained;
  3. Compensation levels for employees earning $100,000 or less are maintained; and
  4. No more than 25% of the total loan amount is used on qualified, non-payroll expenses, including utilities, rent, etc.

Accessing PPP Loan Forgiveness

The lenders providing PPP loans will be responsible for determining loan forgiveness. To receive loan forgiveness, borrowers must apply to their lender. Requirements for forgiveness will include:

  • A formal application;
  • Documentation verifying employees and pay rates for the applicable 8 week period;
  • Documentation supporting other qualified, covered expenses;
  • Certification that presented information is true and accurate.

Lenders may require additional documentation, and will determine levels of forgiveness on a case-by-case basis.

Approach to maximizing loan forgiveness – document, document, document

Obviously, the first and most important rule for PPP loan forgiveness is to strictly follow all requirements for how funds can be used within the eight-week period following receiving the loan. But beyond that, an equally essential step is the ability to provide necessary documentation to lenders on how the funds were used to secure forgiveness. Following are some steps for optimizing documentation and record-keeping.

Create an Eight Week Budget Plan
Planning the use of funds will not only help make sure funds are directed to qualified PPP expenses, but will also help make sure the funds are used appropriately within the allotted eight week period.

Track Qualifying Expenses
Keep distinct records of all qualifying expenses PPP funds are used for. Whether a simple Excel spreadsheet or a function of your ERP, tracking expenses will help provide a visual of your organization’s progress, and can be shared with lenders following the eight week period as supplementary documentation.

Utilize Third Party Documentation Whenever Possible
Since payroll costs are at the center of the use of PPP funds, if you use a third party payroll provider, include their reports in your documentation. Similarly for other expenses, save all receipts and other documentation provided by utilities, etc.

Establish Employee Headcount
Maintaining staff numbers is a central component to PPP loan forgiveness. Depending on your organization, you may have time cards or an electronic timekeeping system. Provide copies of the timecards or reports from your timekeeping system to establish you’ve maintained headcount levels.

Rent, Leases and Mortgage Loans
Some lenders may require you to provide copies of rent, lease, and mortgage loan agreements to validate commitments that were in place prior to February 15, 2020. Be prepared to provide copies of these documents when applying for forgiveness.

Communicate with your Lender Ahead of Time
Lenders will have different requirements for establishing PPP loan forgiveness. Maintain an open line of communication with your lender to fully understand the documentation they will need. That way there will be no surprises when it comes time to apply for forgiveness.

Final thoughts

It is important to remember that PPP funds that do not ultimately qualify for forgiveness will convert into low interest loans. With that in mind, it is probably not in your organization’s best interest to bend over backward, altering payroll systems or other operations, to meet PPP forgiveness requirements.

There are a great many technical accounting issues, tax implications, and other complexities surrounding accessing, utilizing, and securing forgiveness for PPP loans. MGO has a dedicated team focused on navigating the various economic stimulus programs enacted to combat the COVID-19 pandemic. To schedule a consultation, please contact us here.

Related Services

Tax Services

Related Solutions

Tax Services


Federal COVID-19 Relief

Let’s Talk