PPP Loan Forgiveness

On June 17th, the U.S. Small Business Administration, in consultation with the Department of the Treasury, posted a revised, borrower-friendly Paycheck Protection Program (PPP) loan forgiveness application implementing the PPP Flexibility Act of 2020, signed into law by President Trump on June 5, 2020.  In addition to revising the full forgiveness application, SBA also published a new EZ version of the forgiveness application that applies to borrowers that:

  • Are self-employed and have no employees; OR
  • Did not reduce the salaries or wages of their employees by more than 25%, and did not reduce the number or hours of their employees; OR
  • Experienced reductions in business activity as a result of health directives related to COVID-19, and did not reduce the salaries or wages of their employees by more than 25%.

The EZ application requires fewer calculations and less documentation for eligible borrowers.  Details regarding the applicability of these provisions are available in the instructions to the new EZ application form. 

Both applications give borrowers the option of using the original 8-week covered period (if their loan was made before June 5, 2020) or an extended 24-week covered period.  These changes will result in a more efficient process and make it easier for businesses to realize full forgiveness of their PPP loan.

Click Here to download the EZ Forgiveness Application.

Click Here for the EZ Application Instructions.


On June 5th, the President signed into law the Paycheck Protection Program Flexibility Act of 2020 (Flexibility Act).  The Flexibility Act addresses significant issues with the Paycheck Protection Program (PPP) created by the CARES Act by making many changes to the PPP that apply retroactively to all borrowers. Most of the revisions are borrower-friendly and will be helpful to a borrower trying to maximize the forgiveness aspect of its PPP loan.  Below is a highlight of some of the fundamental changes and additions under the Flexibility Act.

1. Amendments to Forgiveness:

The Flexibility Act changes the “covered period” for both uses of the loan proceeds and the forgiveness application. These changes are applied retroactively to all PPP loans regardless of when the loan was applied for or issued.

     a) Period to Use Borrowed Funds. In its original form, the CARES Act limited the use of the funds distributed under PPP loans and required that all borrowed funds be used by June 30, 2020. The Flexibility Act revises that period so that borrowed funds can be used on the allowed expenses through December 31, 2020. This gives borrowers an additional six months to use the funds borrowed under the PPP program.

     b) Covered Period for Calculating Forgiveness of PPP Funds. One of the most significant changes in the Flexibility Act is the extension of the period of time to use the borrowed funds and still be able to seek forgiveness. The CARES Act required that, in order to qualify for forgiveness, borrowed funds had to be used in the first 8 weeks after the loan was issued. That period is extended to the earlier of December 31, 2020, and the 24 week period after the origination of the loan. A borrower can still elect to have the 8 week period govern its PPP loan, which might be a consideration if a borrower anticipates changes to its workforce or a reduction in employee pay or salary workforce in the time covered by the 24 week period. If a borrower elects the 24 week “covered period” that period also impacts the potential reductions to forgiveness because of reductions to employee headcount or material reductions in employee pay. 

      c) New Ways to Avoid Reduction in Forgiveness. The Flexibility Act also creates two new ways for borrowers to avoid a reduction in the amount forgiven due to a decrease in full-time equivalent employees. Under the CARES Act and subsequent rules promulgated by the SBA, the amount of a PPP loan eligible for forgiveness is reduced if a borrower suffers a reduction in the average number of FTEEs during the covered period. The Flexibility Act creates new exemptions to that reduction in forgiveness if the loss of FTEEs is documented and attributable to either (i) the inability to hire prior employees or similarly qualified employees by December 31, 2020; or (ii) an inability to return to the same level of business activity due to compliance with HHS, CDC or OSHA guidance or requirements related to sanitation, social distancing or other safety requirements related to COVID-19. The Flexibility Act does not give much guidance on how these exemptions will apply, and it will be interesting to see how the SBA interprets these provisions in its future guidance. Also, the Flexibility Act extends from June 30, 2020, until December 31, 2020, the end period during which borrowers can rehire employees and thereby limit reductions in forgiveness.

2. Change to the Limitation of Forgiveness for Non-Payroll Costs:

When the CARES Act was passed, there was no requirement on what portion of forgivable funds had to be applied to payroll costs. However, the SBA quickly by guidance and then interim rules required that borrowers use at least 75% of the amount forgiven on payroll costs. The Flexibility Act essentially overrules the SBA’s rulemaking on this point and provides that only 60% of the amount forgiven is required to be used on payroll costs. This change may relieve many borrowers in high-rent districts of a burden that limited the total amount forgivable and may be particularly beneficial to restaurants, bars, and retail stores. Of course, borrowers can use more than 60% of the forgiven amount on payroll costs, without any issue.

3. Change to the Deferral Period:

An issue that many early borrowers had under the CARES Act was the possibility that their first payment on the PPP loan could become due prior to the borrowers learning how much of the loan would be forgiven. To prevent this situation, the Flexibility Act defers payment on the loan until the date that the borrower learns the amount of forgiveness.

Borrowers are not required to seek forgiveness of PPP loans, although the expectation is that most will seek to have at least some portion forgiven. For those borrowers who do not apply for forgiveness under the program, the loan deferment period lasts until 10 months after the applicable covered period expires. For borrowers using the 24 week covered period, this means that payment could be deferred up to nearly 16 months if they do not seek forgiveness. However, borrowers who have already received their PPP funds should be aware that if they are unable to negotiate an extension to the maturity date, they will have only 8 months to pay off the entire balance of the loan if they do not seek forgiveness, which could leave borrowers with some hefty monthly payments.

4. Payroll Tax Deferral Permitted Regardless of Forgiveness:

As discussed in a prior advisory, the CARES Act allows employers to defer payment of the employer’s share of the Social Security tax on wages paid beginning on March 27, 2020, and ending on December 31, 2020 (“Qualified SSI Taxes”). The deferred Qualified SSI Taxes are payable to the IRS in two installments, with 50% of such taxes being due on December 31, 2021, and the remainder due on December 31, 2022.

Under the CARES Act, an employer that received a PPP Loan was allowed to defer Qualified SSI Taxes, but only for taxes that were due to the IRS prior to the forgiveness of the PPP Loan. Any Qualified SSI Taxes that were due to the IRS after forgiveness was not eligible for deferral. The Flexibility Act eliminates the CARES Act rule that prevented continued deferral following PPP Loan forgiveness. Accordingly, an employer that receives a PPP Loan is eligible to defer Qualified SSI Taxes both before and after forgiveness of its PPP Loan. This new rule applies to all PPP Loans

5. Maturity for Loans:

The Flexibility Act extends the term for all new PPP loans going forward. Instead of a two-year loan, the Act revises the term to a minimum of five years. This only applies to PPP loans issued after the date of enactment. However, the Flexibility Act adds that lenders and borrowers of previously issued PPP loans could mutually agree to modify the terms of their existing loans to incorporate the longer 5-year maturity term.  This will be handled on an individual borrower basis at First National Bank of Pasco, and this modification will also impact the interest rate of the loan.

At this time, specific guidance has not been issued to the Banks on the process of filing your forgiveness application to the SBA for approval and processing.  We ask that you be patient with us as we await this information from the SBA.


How to Use Funds from your PPP loan and adhere to forgiveness guidelines:

The Paycheck Protection Program was created to help you keep your employees at their current base pay and cover other essential business costs. For these loans, 60% of funds must cover payroll costs, while 40% can be used for other qualifying costs (like rent, leases, and utilities) over a twenty-four week (168-day) period following your loan date of disbursement for it to be 100% forgiven. Any portion of your loan used for non-qualifying costs will not be forgiven, and you’ll be required to pay it back with interest.


The SBA defines qualifying costs as:

  1. Eligible payroll costs: Borrowers are generally eligible for forgiveness for the payroll costs paid and payroll costs incurred during the twenty-four-week (168-day) Covered Period (or Alternative Payroll Covered Period) (“payroll costs”). Payroll costs are considered paid on the day that paychecks are distributed or the Borrower originates an ACH credit transaction. Payroll costs are considered incurred on the day that the employee’s pay is earned. Payroll costs incurred but not paid during the Borrower’s last pay period of the Covered Period (or Alternative Payroll Covered Period) are eligible for forgiveness if paid on or before the next regular payroll date. Otherwise, payroll costs must be paid during the Covered Period (or Alternative Payroll Covered Period). For each individual employee, the total amount of cash compensation eligible for forgiveness may not exceed an annual salary of $100,000, as prorated for the covered period. Count payroll costs that were both paid and incurred only once. Payroll costs consist of compensation to employees (whose principal place of residence is the United States) in the form of:
        •  salary, wages, commissions, or similar compensation; cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips);
        • payment for vacation, parental, family, medical, or sick leave; an allowance for separation or dismissal; payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums, and retirement; payment of state and local taxes assessed on the compensation of employees; and for an independent contractor or sole proprietor, wages, commissions, income, or net earnings from self-employment, or similar compensation. See 15 U.S.C. 636(a)(36)(A)(viii); 85 FR 20811, 20813.
  2. Eligible nonpayroll costs: Nonpayroll costs eligible for forgiveness consist of:
      1. covered mortgage obligations: payments of interest (not including any prepayment or payment of principal) on any business mortgage obligation on real or personal property incurred before February 15, 2020 (“business mortgage interest payments”);
      2. covered rent obligations: business rent or lease payments pursuant to lease agreements for real or personal property in force before February 15, 2020 (“business rent or lease payments”); and
      3. covered utility payments: business payments for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020 (“business utility payments”).
        • An eligible nonpayroll cost must be paid during the Covered Period or incurred during the Covered Period and paid on or before the next regular billing date, even if the billing date is after the Covered Period. Eligible nonpayroll costs cannot exceed 25% of the total forgiveness amount. Count nonpayroll costs that were both paid and incurred only once.

The amount of loan forgiveness the Borrower applies for may be subject to reductions as explained in PPP Loan Forgiveness Application, Schedule A.


What costs DO NOT meet PPP loan forgiveness requirements?

The SBA has also defined non-qualifying costs, so make sure you don’t count them towards your average monthly payroll nor use a PPP loan to pay for the following:

  • Employee compensation for workers whose main residence is outside of the U.S.;
  • Compensation for an individual employee whose annual salary exceeds $100,000 (prorated as necessary);
  • Compensation for workers who receive 1099s instead of W-2s;
  • Federal employment taxes imposed or withheld between February 15, 2020, and June 30, 2020, including the employee’s and employer’s share of FICA (Federal Insurance Contributions Act) and Railroad Retirement Act taxes, and income taxes required to be withheld from employees; and
  • Qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act (Pub. L. 116–127).

How to Apply for Loan Forgiveness:

Click Here to download the Loan Forgiveness Application (revised June 17th).  OR use the EZ Forgiveness Application above, if you qualify.  To apply for forgiveness of your Paycheck Protection Program (PPP) loan, you (the Borrower) must complete this application as directed in the application instructions Click Here.

Click Here to review the Loan Forgiveness Interim Final Rules.

Click Here to review the Lender Responsibilities and SBA Loan Review Procedures.  

At the end of either the eight-week (56-day) or twenty-four week (168 day) covered period after you received the loan proceeds, you can apply using the Forgiveness Application directly with the Lending Bank. You should include:

  • PAYROLL:  Documentation verifying the eligible cash compensation and non-cash benefit payments from the Covered Period or the Alternative Payroll Covered Period. 
  • FTE:  Documents may include payroll tax filings reported, or that will be reported, to the IRS (typically, Form 941) and state quarterly business and individual employee wage reporting and unemployment insurance tax filings reported, or that will be reported, to the relevant state. Documents submitted may cover periods longer than the specified time period.
  • NON-PAYROLL:  Documentation verifying the existence of the obligations/services prior to February 15, 2020, and eligible payments from the Covered Period.

The above documentation details are listed on page 10 of the Forgiveness Application. Click Here to see the details.



Documents that Each Borrower Must Maintain for Six (6) Years, but is Not Required to Submit: All records relating to the Borrower’s PPP loan, including documentation submitted with its PPP loan application, documentation supporting the Borrower’s certifications as to the necessity of the loan request and its eligibility for a PPP loan, documentation necessary to support the borrower’s loan forgiveness application, and documentation demonstrating the  Borrower’s material compliance with PPP requirements. The Borrower must retain all such documentation in its files for six years after the date the loan is forgiven or repaid in full, and permit authorized representatives of SBA, including representatives of its Office of Inspector General, to access such files upon request. 


The Lending Bank and or the SBA reserves the right to require more information.  There will be NO forgiveness if the documentation is not presented and accepted.

Your Lending Bank will then have 60 days to reply on whether or not you qualify for loan forgiveness, and the SBA has 90 days to approve your loan forgiveness.

Please refer back to this page often as we will continue to update it as new guidance becomes available from the SBA and the Department of Treasury.

Last Update 06/18/2020