6 Potholes to Avoid on the Road to Forgiveness

PPP loan forgiveness is not guaranteed. Here, we’ll lay out some of the potholes ahead and how to avoid them so you can be eligible for forgiveness and convert as much as permitted of your PPP loan amount – if not 100% -- into essentially free money from the SBA.

Sixty days after your PPP loan is funded, the gate is scheduled to open for you to apply for forgiveness through your bank. Keep in mind 2 things: (1) You’ll want to apply close to that day 60, but you don’t have to apply right on day 60; and (2) start preparing right now so you have your ducks in a row when you do apply.

Forgiveness is not automatic

This is more of an all-encompassing crater. You will have to meet specific criteria if you want to turn your PPP loan into a grant. We are all still waiting for the specific guidelines from the SBA, so for now, we want to provide general guidance to help keep you on track.

Payroll, payroll, payroll

At this time, the SBA rules state that not less than 75% of the loan amount must go toward payroll and qualifying benefit costs. Up to 25% may go toward other qualifying expenses, including mortgage payments, rent obligations and utilities.

Wage cuts

If your business cuts wages by more than 25% for employees who earned $100,000 or less in 2019, PPP loan forgiveness will likely be reduced.

Staff cuts

PPP loan amounts are based on payroll data since they are intended to support employment. So, maintaining full-time equivalent employee levels and wages through June 30, 2020 can help maximize forgiveness for eligible businesses. If you’ve had layoffs, you’ll want to watch for final rules from Treasury, which are expected to include a loan forgiveness calculation that excludes laid-off employees who reject a rehire offer.


As it stands today (but there’s discussion in Washington that this may change), you will need to spend your loan amount during the eight-week covered period, which begins on the date your loan was disbursed. The portion not spent on qualifying expenses during the covered period becomes a regular loan with a 1% interest rate, payable in full over a two year maturity period, with an initial payment deferral of six months.

Other funding

This is less a pothole and just common sense and fairness for businesses that received grants under the SBA’s Economic Injury Disaster Loan (EIDL) program. If your business received an EIDL loan with a corresponding emergency, then any PPP forgiveness would be reduced by that EIDL $10,000 grant portion of the EIDL loan amount.

There will probably be more potholes along the way as Washington comes up with specific rules around forgiveness. So, getting ready for forgiveness now and staying informed on the journey ahead will help keep your business on course to apply for forgiveness when the time comes.

If you have questions regarding the forgiveness process, talk with your lender. Each bank may have its own forgiveness application process.

Please keep in mind, these are just a few of the things your small businesses may want to consider, but they are by no means all the factors you may need to take into account to qualify for PPP loan forgiveness. Finally, as a PPP lender, Bank of the West can’t offer an opinion on whether the loan of any particular borrower qualifies for forgiveness.

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