Paycheck Protection Program: Loan Forgiveness Highlights

The Paycheck Protection Program (“PPP”) authorizes up to $349 billion in forgivable loans to small businesses to pay their employees during the COVID-19 crisis. All loan terms will be the same for everyone. The loan amounts will be forgiven as long as:

  • The loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs over the 8-week period after the loan is made; and
  • Employee and compensation levels are maintained.

Payroll costs are capped at $100,000 on an annualized basis for each employee. Due to the likely high subscriptions, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs. Loan payments will be deferred for 6 months.

Loan forgiveness is defined in Section 1106 of the CARES Act and we’ve identified key definitions below.

Key Definitions

  1. Covered loan – PPP loan guaranteed by SBA as defined by Section 1102 of the Act.
  2. Covered mortgage means any indebtedness or debt instrument incurred in the ordinary course of business, that
    • Is a liability of the borrower
    • Is a mortgage on real or personal property and
    • Was incurred before February 15, 2020
  3. Covered period means the eight-week period beginning on the date of loan origination (defined as date first loan proceeds are deposited into borrower’s bank account)
  4. Covered rent obligation means rent from a leasing agreement in force before February 15, 2020.
  5. Covered utility payment means payment for service for the distribution of electricity, gas, water, transportation, telephone or internet access for which service began before February 15, 2020.
  6. Expected forgiveness amount means the amount of principal that a lender reasonably expects a borrower to expend during the covered period on the sum of
    • Payroll costs – this is the same definition of payroll costs that was utilized to calculate the loan amount (wage, commission, tips, health care premiums, employer retirement costs)
    • Payments of interest on any covered mortgage obligation
    • Payments on any covered rent obligation
    • Payments on covered utility obligations


Recipient shall be eligible for forgiveness of indebtedness on a covered loan in an amount equal to the following costs incurred and payments made during the covered period

  1. Payroll cost
  2. Interest on any covered mortgage obligation
  3. Payment on any covered rent obligation
  4. Any covered utility payment

Limits on Forgiveness

  1. The amount of forgiveness may not exceed the principal amount of loan.
  2. The amount of loan forgiveness under this section shall be reduced by multiplying the amount obtained by dividing:
    • Average FTE during the coverage period (8 weeks)
      • FTE per month between February 15, 2019, to June 30, 2019; or
      • FTE per month between January 1, 2020, to February 29, 2020
    • Full-time employees will be determined by calculating the average number of FTE for each pay period falling in each month.
  3. Amount of loan forgiveness shall be also reduced by the amount of any reduction in total salary or wages of any employee that makes less than $100K during the covered period that is in excess of 25% of the total salary or wage of the employee during the most recent full quarter during which the employee was employed before the covered period. (Example: Covered period second quarter 2020 then first quarter 2020 is full quarter before the covered period).
  4. Rehire Exemption
    • If by June 30, 2020, the eligible employer rehires the same number of FTE’s as it had on February 15, 2020, the forgiveness will be calculated without regard to (b) or (c) above.

Application for Forgiveness

  1. Will be submitted to the lender and include:
    • Documentation verifying the number of FTE on payroll and pay rates
    • Payroll tax filings with IRS (Form 941), state income, payroll and unemployment filings
    • Documentation supporting covered mortgage obligations, covered lease obligations, and covered utility payments
    • Certification from a representative of the eligible recipient that:
      • Documentation is true and correct
      • The amount for which forgiveness is requested was used to retain employees, make interest payments on the covered mortgage, make payments on covered rent obligations or make covered utility payments
    • Any other documentation, Administrator determines necessary
  2. There will be no forgiveness without submitting the required documentation
  3. Not later than sixty days after date lender receives an application for forgiveness, the lender will issue a decision for forgiveness application
  4. Debt forgiveness shall be excluded from gross income for income tax purposes

BMF is here to help. We’ve provided an FAQ sheet to help borrowers understand the stipulations of loan forgiveness. Contact your BMF Advisor to discuss your situation and see how you can best maximize your loan forgiveness.

Check out our Q&A sheet on loan forgiveness to help answer any immediate questions you may have. Visit our COVID-19 Resource Center for additional information and resources for you and your business.


About the Authors

Dale A. Ruther
Dale A. Ruther
Partner Emeritus,


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