PPP Loan Forgiveness: Everything You Need to Know

You may have received funding from the Small Business Association (SBA) Paycheck Protection Program (PPP), which was a major component of the federal CARES Act.  While the funding is technically called a loan, PPP borrowers can be forgiven 100% of the loan can be forgiven if they follow the PPP loan forgiveness rules.

It can be difficult for small businesses to navigate the ins and outs of how to achieve total Paycheck Protection Program forgiveness, but the new bill aims to make the application process easier.

Note: This article does not cover how to apply for funding, but instead how to apply for PPP forgiveness. 

Changes & Updates to PPP Loan Forgiveness


As of 2024, a significant portion of the Paycheck Protection Program (PPP) loans, specifically 96%, had been forgiven. This accounts for the bulk of the funds distributed under the PPP. Despite this high rate of forgiveness, a small number of companies, around 73,000 out of 11.5 million, chose to repay their loans, potentially to avoid government audits. The U.S. Small Business Administration (SBA) initiated a 60-day period starting January 1, 2024, primarily targeting PPP borrowers with loans under $100,000. The aim was to inform these businesses about their loan status and the opportunities for loan forgiveness.


The PPP Loan Forgiveness Program continued to assist eligible borrowers. The program’s design was to forgive loans either partially or fully, contingent upon the borrower’s adherence to the criteria. These criteria included the utilization of funds for approved expenses such as payroll, specific protective gear, supplier costs, employer-provided group insurance premiums, property damage, and inventory. However, it’s essential to note that any forgiveness granted on the basis of inaccurate information was taxable by the IRS. The SBA retained the authority to review and audit PPP loan and forgiveness applications for a period of up to six years post-forgiveness for loans exceeding $150,000. Consequently, it was imperative for PPP borrowers to keep all relevant documentation for potential audits during this period.


In 2022, the U.S. Small Business Administration (SBA) made it clear that new applications for the Paycheck Protection Program (PPP) were no longer being accepted. However, businesses that had received PPP loans in 2020 and 2021 were still eligible for loan forgiveness. To be considered for this forgiveness, borrowers needed to allocate a minimum of 60% of the loan amount to payroll expenses within a period ranging from 8 to 24 weeks following the disbursement of the loan.

The SBA implemented an automated review process for all PPP loans. Additionally, loans amounting to $2 million or more were subject to a manual review. As of October 2, 2022, a considerable number of PPP loans, totaling 10.5 million and amounting to $755 billion, had been forgiven.

It is important to note that not every business that obtained a PPP loan was able to meet these forgiveness criteria. Those businesses with a remaining loan balance were required to repay the amount owed by or on the loan’s maturity date. This repayment obligation applied to any part of the loan that did not qualify for forgiveness under the PPP guidelines.


In 2021, the Paycheck Protection Program (PPP) introduced several updates to its loan forgiveness process. The PPP officially concluded on May 31, 2021, yet businesses that had previously received loans continued to be eligible for forgiveness. After August 4, 2021, borrowers whose lenders were part of the direct forgiveness scheme were able to submit their applications for loan forgiveness through the SBA’s online portal.

As of November 2021, data indicated that approximately 97% of the PPP loan funds were allocated to payroll expenses. Businesses that utilized at least 60% of their PPP loan for payroll expenses within a timeframe of 8 to 24 weeks from the loan’s receipt were eligible to apply for loan forgiveness. This provision was applicable to businesses that received PPP loans in both 2020 and 2021.

Furthermore, the program mandated a manual review for all PPP loans that amounted to $2 million or more. It’s important to note, however, that not all businesses that obtained PPP loans were able to meet the specified conditions for loan forgiveness. Those businesses were required to repay any portion of their PPP loan that did not qualify for forgiveness under the established guidelines.


On December 27, 2020, President Trump signed the Consolidated Appropriations Act, 2021 into law. In the bill are guidelines for a second round of the Paycheck Protection Program Loan Forgiveness. This article has been updated with new PPP forgiveness rules. You can also learn everything you need to know about the PPP updates in our article.

A Brief Overview of PPP Loan Forgiveness Rules 

The amount of funding you either already received or are waiting to receive is equal to 2.5 times your average monthly payroll cost for 2019 or $10 million, whichever is lower. The funding you get from the loan can be used for:

  • Payroll: Payroll costs include wages, salaries, PTO, and health benefits.
  • Mortgage interest: You can use the PPP funds to pay for mortgage interest as long as you signed your mortgage before Feb. 15, 2020.
  • Rent: As long as you signed your lease before Feb. 15, 2020, you can pay rent with the loan.
  • Utilities: If your services began before Feb. 15, 2020, you can also pay utilities with the funding.

What does the “Utilities” category include? According to the CARES Act, you can spend the funding on electricity, gas, water, transportation, phone services, or internet access. If you use your PPP loan for one of the spending buckets mentioned above, that money becomes eligible for forgiveness.

Whose Eligible for PPP Forgiveness?

With the new bill comes a new rule stipulating that if you received a loan of $50,000 or less, you will be eligible for full forgiveness, even if you reduced your FTE (full-time equivalent) employee count or reduced employee wages or salaries.

In other words, as long as you meet the other forgiveness criteria, you can skip the complicated calculations around FTE employees and payroll expenses and still meet the eligibility criteria for full forgiveness.

Eligible Expenses Coverage Period

When you apply for your loan, you can choose a term of 8-24 week coverage period.

Your coverage period starts the day you received your first loan payment—not necessarily the day you signed your loan agreement. Don’t worry about adjusting your payroll schedule to fit this window. Any payroll incurred during the coverage period is an eligible expense.

PPP Forgiveness Payroll Percentage

You have to use at least 60% of the funding on payroll costs in order to get the most out of PPP loan forgiveness. You can still receive some forgiveness if you don’t follow this rule, but the amount will reduce in proportion to the percentage you did spend on payroll.

This new percentage is a result of the changes to PPP loan forgiveness laid out in the Paycheck Protection Program Flexibility Act. Initially, small business owners had to spend 75% of the funding on the payroll.

Note: You can’t include payments to independent contractors in this percentage.

How to Apply for PPP Loan Forgiveness

The first step to applying for PPP loan forgiveness is to download the application. If this is your first time going through the PPP forgiveness process, visit sba.gov to download this form. If you are taking a second PPP loan, you’ll need to download this form.

Fill out the form yourself after your coverage period is up and then submit it to your lender for processing.

Note: If you plan on restoring your staff or wage level, don’t apply for forgiveness until you’ve already done so.

You’ll need to collect all required documents to complete the PPP loan forgiveness application:

  • Verification of the number of full-time employees on the payroll, as well as their wage rates for the period used to show you met the staff and wage level requirements. These can include payroll reports, payroll tax filings, or supporting documentation that verifies benefit contributions.
  • Documents that verify your mortgage, utility, or rent payments. These can be in the form of payment receipts and account statements.

Your lender must respond with a forgiveness determination within 60 days of receiving your PPP forgiveness application form. After the SBA determines your loan forgiveness amount, your loan payments will begin. If you follow all the rules and regulations that come with your PPP loan, you won’t have to pay.


PPP Loan Forgiveness FAQs

Who Reviews my PPP Loan Application?

PPP loan review can be conducted by SBA at their discretion. It takes them 36 hours to review express applications and between 30-and 60 days for non-urgent applications.

What Can PPP Loan Proceeds be Used For?

Eligible borrowers can use SBA PPP loan proceeds to:

  • Cover payroll for any number of employees
  • Mortgage interest
  • Business rent
  • Utilities

Can I Apply for a PPP Loan Forgiveness Twice?

Yes, some businesses who have already received the first draw PPP are eligible for a second draw PPP loan. Be sure to double-check the requirements and check the Second Draw PPP Loan box on the SBA form 3508s.

When Can I Apply for PPP Loan Forgiveness?

The PPP loan forgiveness rule states that borrowers are required to either incur or pay the loan within a 24-week period (which begins on the first day of loan disbursement).


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