By Cary Zimmerman

While the SBA’s new Paycheck Protection Program (PPP) only recently launched, with many borrowers already receiving approvals and the earliest applicants now starting to receive disbursements, it isn’t too early to think about what steps you should take to prepare for when you’ll have to substantiate the amount of your PPP loan that should be forgiven. The guidance below provides helpful information to prepare for the forgiveness stage of the process.


  • The forgiveness application will go through the lender that is servicing the loan. The SBA hasn’t issued detailed guidance on forgiveness logistics yet (although its Interim Final Rule published on April 2, 2020 indicates that the SBA will issue such guidance), and no template forgiveness application has been released by the SBA, so the process is still somewhat opaque. We recommend that you engage with your PPP lender now to get a sense of what their particular application process may look like, although we intend to provide updates on the process as they become available. In addition, consider setting up a separate bank account to segregate PPP funds to make your reporting easier later.


  • Ensure that your record-keeping process captures all relevant documentation showing your application of loan proceeds to “payroll costs” and other approved expenses. You should begin to compile these items as soon as possible:
    • Documentation verifying the number of FTE employees on payroll and pay rates, including payroll tax filings to the IRS, state income, payroll and unemployment insurance filings and payroll registers; and
    • Documentation supporting mortgage interest (incurred on personal or real property prior to February 15, 2020), rent (for lease agreements in force prior to February 15, 2020) and utility expenses (for payments for electricity, gas, water, transportation, phone or Internet access for which service began prior to February 15, 2020), including canceled checks, payment receipts, account statements, invoices and the like.


  • Forgiveness applies if you incur costs for, or make payments on, approved expenses during the 8-week covered period.
  • It’s not clear yet what deadlines will apply to submit a forgiveness application; we’ll provide an update on this, once we know more.
  • Lenders have up to 60 days following a borrower’s submission of a forgiveness application to issue a decision on the application. PPP loan amounts forgiven will be paid by the SBA directly to the lender.


  • To maximize forgiveness (and lower your cost of capital), ensure you’re not spending more than 25% of the loan amount on non-payroll costs. Amounts incurred or spent on non-payroll costs above this threshold will not be forgiven.
  • For small business borrowers, remember that forgiveness also will be reduced by the following (so track these metrics and make adjustments as needed):
    • The ratio of the average number of FTE’s per month employed during the covered period to:
      • Average # of FTE’s per month employed during the period beginning Feb. 15, 2019 and ending June 30, 2019; or
      • Average # of FTE’s per month employed during the period beginning Jan. 1, 2020 and ending Feb. 29, 2020; or
      • For seasonal employers, the average FTE’s per month employed during the period between Feb. 15, 2019 and June 30, 2019.
    • The amount of any reduction in total salary or wages of any employee (with a salary <$100K/year) in excess of 25% of the total salary or wages of the employee during the most recent full quarter before the covered period.

However, forgiveness reduction will not occur if you: (i) rehire employees laid off between Feb. 15, 2020 and 30 days after the date of the CARES Act; and (ii) pay the rehired employees back-pay and restore their salary to the pre-coronavirus level.

  • For independent contractor, sole proprietor and self-employed individual borrowers, in addition to payroll costs, mortgage interest, rent and utility payments, owner compensation replacement is forgivable up to 8 weeks’ worth (8/52) of 2019 net profit (excluding any qualified sick or family leave equivalent amounts for which credits are claimed under the Families First Coronavirus Response Act). For more about this, please read our article here.
  • While the 8-week “covered period” dictates loan forgiveness, the “covered period” for spending your PPP loan proceeds actually extends until June 30, 2020.
  • Unforgiven amounts will be subject to a 1.0% annual interest rate on a 2-year loan term with a minimum 6-month deferral of payment (during which interest will continue to accrue).

Taking these preliminary steps will put you in an advantageous position when it comes time to apply for PPP loan forgiveness. If you have any questions about PPP loans or any other SBA loan program, please reach out to Cary Zimmerman at or (216) 736-7275 or Kevin T. O’Connor at or (216) 736-7213.