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Is a Paycheck Protection Program Loan Forgivable?

If you’re a borrower of this COVID-era program, you should understand how PPP loan forgiveness works, whether or not you’re eligible and how to apply.

Written by Hilary Collins / August 23, 2022

Quick Bites

  • The Paycheck Protection Program (PPP) was established in 2020 to provide low-interest loans to businesses struggling because of the COVID pandemic.
  • If you meet certain criteria, your PPP loan could be forgiven in part or in full.
  • Many borrowers will be able to apply for forgiveness online via the Small Business Administration (SBA). Others will need to work with their lender.

You might have heard the phrase “PPP loan” being thrown around quite a bit back when COVID first hit. The government-funded Paycheck Protection Program got a lot of press as struggling businesses rushed to take advantage of federal initiatives aimed at keeping those people afloat during the pandemic.

If you’re one of the millions of PPP borrowers, you’re probably anxious to learn more about whether or not your loan can be forgiven. The good news: If you used it as it was intended to be used, you have an excellent chance of getting all or some of the debt forgiven. In fact, about a third have already been forgiven. Here’s what you need to know to start that process.

What is a PPP loan?

A PPP loan is a loan obtained through the Paycheck Protection Program, which was run by the SBA. The program was established by the Coronavirus, Aid, Relief, and Economic Security (CARES) Act and began on April 3, 2020.[1] The program took its last application on March 31, 2021, and officially ended on May 31, 2021.[2]

PPP loans were available to most small businesses and nonprofits with fewer than 500 employees. These loans were specifically intended to allow businesses to continue to employ their workers during the pandemic, and the amount of the loans was based on businesses’ payroll amounts, with a $10 million limit.[3]

Fun Fact

There has been a good deal of criticism of how PPP funds were distributed, with the National Bureau of Economic Research estimating that only 23% to 34% of the funds actually went to workers who otherwise would have lost their jobs.

By the time the program was shuttered, the SBA had handed out about $800 billion in PPP loans.[4] And as of June 30, 2021, more than 11.8 million PPP loans had been issued.[5]

Is a PPP loan forgivable?

Yes, PPP loans are forgivable if they meet certain criteria. In fact, according to June 2021 data from the Pandemic Response Accountability Committee, an independent oversight committee meant to ensure CARES Act funds weren’t misspect, 4.1 million PPP loans have been forgiven, with an average dollar amount of almost $100,000.[5]

Here are the eligibility requirements for PPP loan forgiveness:

  • At least 60% of the loan was spent on payroll

  • Employee and compensation levels remained constant

  • The loan was spent on eligible expenses—i.e., not on a new car for the business owner[6]

You can apply for loan forgiveness at any point between when you’ve spent your last PPP money and your loan’s maturity date, which is the date your last loan payment is due.

How does PPP loan forgiveness work?

If you meet the eligibility requirements, it’s time to dive into the forgiveness process.

First, determine if your lender is participating in direct forgiveness or not. The SBA keeps a list of lenders who are participating here. If your lender is on the list, you can use the SBA’s forgiveness portal to apply. If your lender isn’t on the list, you’ll need to apply through them—ask them about their forgiveness application process.

Next, you’ll gather documentation. Here are some of the items you might need to provide:

  • Payroll information, including tax filings, bank account statements, receipts or canceled checks

  • Business rent, lease or mortgage payment information

  • Business utility statements

  • Covered operation expenses—for instance, software

  • Covered property damage expenses—for instance, replacing a window broken by a vandal and not covered by insurance

  • Covered supplier costs—for instance, regular shipments of coffee and soft drinks

  • Covered worker protection expenditures—for instance, sneeze guards

Once you have it all together, submit your forgiveness application to the SBA or to your lender. They might ask for more information, which is why it’s good to have all your documentation in order even if the application form doesn’t require it.

Don’t be too nervous—data shows that 98% applications are approved.[7] And even if you are denied, you have the right to appeal your decision with the SBA. You’ll need to use the SBA’s Office of Hearings and Appeals’ case portal to do so, and your loan payments will continue to be deferred until the Office rules on your case.

Even with the ongoing criticism of how PPP funds were handled, the program helped a lot of people. Economists estimate that PPP loans saved 2.3 million jobs during some of the darkest days of the pandemic.[8] Hopefully, the option to get those loans forgiven will continue to help small businesses and their workers prosper.

Article Sources
  1. “Tracker: Paycheck Protection Program Loans,” June 1, 2021, American Action Forum, https://www.americanactionforum.org/research/tracker-paycheck-protection-program-loans/.
  2. “Paycheck Protection Program,” U.S. Small Business Administration, https://www.sba.gov/funding-programs/loans/covid-19-relief-options/paycheck-protection-program.
  3. “Everything you need to know about the Paycheck Protection Program,” May 27, 2020, Benefits.gov. https://www.benefits.gov/news/article/399.
  4. “The $800 Billion Paycheck Protection Program: Where Did the Money Go and Why Did It Go There?,” January 2022, National Bureau of Economic Research, https://www.nber.org/system/files/working_papers/w29669/w29669.pdf.
  5. “4.1 million PPP loans were forgiven. Here's why.,” Pandemic Oversight, https://www.pandemicoversight.gov/data-interactive-tools/data-stories/how-many-paycheck-protection-program-loans-have-been-forgiven.
  6. “PPP loan forgiveness,” U.S. Small Business Administration, https://www.sba.gov/funding-programs/loans/covid-19-relief-options/paycheck-protection-program/ppp-loan-forgiveness.
  7. “What to Do if Your PPP Forgiveness Application is Denied (in Full or in Part),” Feb. 18, 2022, McDermott Will & Emery. https://www.mwe.com/insights/what-to-do-if-your-ppp-forgiveness-application-is-denied-in-full-or-in-part/
  8. “An Evaluation of the Paycheck Protection Program Using Administrative Payroll Microdata,” July 22, 2020, Massachusetts Institute of Technology, https://economics.mit.edu/files/20094.

About the Author

Hilary Collins

Hilary Collins

Hilary is an experienced finance writer with a passion for turning complicated topics into readable stories with real-world takeaways.

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