What You Need to Know about PPP Loan Forgiveness

The PPP loan forgiveness program offers borrowers with a unique opportunity to have some—or all—of their loan forgiven, so long as they meet certain criteria. Knowing the PPP loan forgiveness rules, and which PPP loan forgiveness application to use may mean maximizing the amount of your loan that ends up not having to be repaid.

PPP loan forgiveness rules from the SBA have undergone several changes, and there’s a strong likelihood there may be more to come, and those changes could be beneficial to you. With that in mind, we’ve put together all of the most up-to-date PPP loan forgiveness rules, application files, and guidelines as they currently stand.

When Business Owners Should Apply for Forgiveness

Based on the latest guidance, you’ll have up to 10 months from the end of your covered period to defer payments, and repayments, if applicable, won’t begin until Fall 2021. 

Please note that the SBA only recently released its program and technical requirements for the loan forgiveness process. We and our partners are still in the process of certifying our connections to the SBA’s systems and are not accepting forgiveness applications Q1 of next year. After we have opened up our application process, it may be beneficial to wait to apply for forgiveness with our online application. The reason to wait is that the guidelines have not yet been finalized, and legislation is now under consideration that may simplify the loan forgiveness process further. If you wait, you’ll also have more time to accrue and track eligible expenses, which may help you maximize your business’s loan forgiveness amount.

PPP Loan Forgiveness Program Guidelines for Businesses With Employees

One of the most appealing parts of PPP loans is the potential to have the entirety of the loan forgiven. The amount of forgiveness provided by the SBA depends largely on employee-related matters during the term of the PPP loan. 

Chiefly, the program offers forgiveness for businesses with employees so long as they re-hired (or did not lay off) staff, only reduced salaries by 25 percent for employees making less than a $100,000 annualized salary, and used 60 percent of the total funds towards paying employees and staff.  Some exceptions, allowing for full loan forgiveness, apply if laid off staff did not want to return to work, or were otherwise non-responsive to offers to rejoin the company.

There are also other conditions within PPP loan forgiveness requirements that deal with how funds can go towards other purposes. So long as you used no more than 40 percent of your loan to pay for mortgage interest, rent payments, or utilities, you are likely to have the total amount of these expenses forgiven as well. 

With a completed PPP loan forgiveness application form filled out, you’ll submit this and other documents (as necessary) to your lender in order to begin the process. If you received your loan from Celtic Bank through BlueVine, this process is digitized, and we’ll reach out when it’s the right time to apply. The SBA is accepting forgiveness applications, but applicants have up to 10 months from the end of your covered period to apply for loan forgiveness, and repayments, if applicable, won’t begin until Fall 2021.

PPP Loan Forgiveness Program Guidelines for Self-Employed Borrowers

PPP loan forgiveness for self-employed borrowers (including sole proprietors, independent contractors, and partnerships) works slightly differently than it does for businesses with employees. Most of the major conditions remain the same: self-employed borrowers still need to use no less than 60 percent of their loan to cover payroll (or net profit, in this case), no more than 40 percent toward qualifying expenses (mortgage interest, rent, or utilities payments), and that payroll totals do not exceed $100,000 on an annualized basis. Note that healthcare premium payments are not currently covered as forgivable expenses.

The major difference comes down to calculating wages and payroll: self-employed PPP recipients do not have employees other than themselves or their business partner(s), depending on their business entity. Therefore, there is no payroll information required—nor calculations regarding payroll required by way of the PPP loan forgiveness long-form application. Self-employed people who use a payroll service, however, may need to provide this information as per current SBA PPP forgiveness rules.

The deadlines and processes around submitting forgiveness applications remain the same for self-employed individuals as it does for businesses with employees. If you received your loan from BlueVine, this process will be digitized, and we’ll reach out when it’s the right time to apply. Applicants have up to 10 months from the end of your covered period to apply for loan forgiveness, and repayments, if applicable, won’t begin until Fall 2021.

What You Need Before Applying for PPP Loan Forgiveness 

Whether you’re filling out form 3508EZ (or EZ, for short) or the regular 3508 (long form) application, there are several steps you’ll want to take before you begin. Although both versions of the PPP loan forgiveness application are relatively straightforward, they both require borrowers to compile documentation about how they used the funds.

All PPP loan forgiveness applicants will need to provide proof of how they spent their funds. This includes payroll costs (when applicable) as well as proof of using money for other qualifying expenses. These include mortgage interest payments, rent, and utilities.

Borrowers that have employees will want to pay special attention to documents pertaining to staffing. If staff or employees were terminated before the loan period began, and were re-hired after the business received PPP funds, this may significantly impact the total amount of loan forgiveness offered. 

The same is true for businesses that may have laid off staff and then hired new employees. The PPP terms allow for new hires to count toward forgiveness as if they were re-hired employees, so be sure that there’s as much information as possible as it pertains to new hires.

If businesses offered to hire formerly-terminated employees after receiving their PPP loan, and employees rejected their offer, they may still be eligible for the same amount of forgiveness as they would have received if the employee re-joined the company. Considering that current legislation has provided an additional $600 in unemployment benefits, some former employees may stand to make more by remaining on unemployment and have rejected offers (at a reduced salary) as a result. If your business tried to rehire staff, only to have their offer rejected, be sure to have a formal rejection letter (and any correspondence) on hand.

Which PPP Loan Forgiveness Application to Use

Once you’ve collected bills, payroll details, and documentation about hiring during the term of your PPP loan, you’re on your way toward filling out the application. Next, you’ll want to use what you have on file to determine if you need to fill out the long form version, or if you can submit the EZ version. 

Who Can Use the EZ Form

Businesses that suffered economic hardship due to COVID-19 related business disruptions (e.g., closure due to health directives) or did not reduce their staff can submit an EZ form. These businesses also must not have reduced employee salaries by more than 25 percent.  The same is true for self-employed people or those who operate a partnership and do not have a payroll. 

Borrowers that had to reduce their headcount (other than those unable to rehire or replace staff), used less than 60 percent of their loan total toward payroll, or used their funds for unapproved purposes must all use the long form version. The long form version contains several worksheets to help determine how much of your loan is forgivable, as well as additional information about your staffing before and after your loan period.

How to Fill Out the PPP Loan Forgiveness Application

The two versions of the PPP loan forgiveness application are very similar. Both will ask you for a series of administrative details, including:

●        SBA PPP loan number

●        Lender PPP loan number

●        PPP loan amount

●        PPP loan disbursement date

●        Employees at time of loan application

●        Employees at time of forgiveness application

●        Economic Injury Disaster Loan (EIDL) advance amount

●        Economic Injury Disaster Loan (EIDL) application number 

If you received money through the EIDL program, you will need to indicate that on your application. Current rules do not state EIDL funding will impact a borrower’s forgiveness total, although following new SBA guidelines and communicating with your lender is a prudent move. 

Both versions of the PPP loan forgiveness application will want to know your payroll schedule. Self-employed borrowers can indicate an irregular payment schedule by selecting “other.”

What is the Covered Period?

The form will also ask you about the “covered period.” This is the period beginning on the day of your first loan disbursement and ending 167 days later (24 weeks). If you received your loan before June 5, 2020, however, you can opt for an eight-week covered period

The original PPP in place before June 5 specified that borrowers had only eight weeks to use their funds. But if you received your loan before this date, you can opt for the shorter period, so long as you used the funds within an eight-week period. Some borrowers may want to go with the eight-week covered period if they used funds to rehire or replace staff—especially if they have encountered financial difficulties with keeping this staff employed during the longer 24-week period.

What is the Alternative Covered Payroll Period?

You’ll also want to indicate if you’ve opted for the Alternative Payroll Covered Period. The details regarding the Alternative Payroll Covered Period are vast and, frankly, somewhat complicated. In essence, if you needed to use your PPP loan funds to pay your payroll in a way that doesn’t line up chronologically with your loan’s covered period, you’ll want to provide the first and last date of your payroll in which you pulled from PPP funds to pay employees. If you’re unsure about whether or not the Alternative Payroll Covered Period applies to you, be sure to contact your accountant and legal professionals.

Forgiveness Amount Calculations

This is where the numbers come into play, and the total forgivable amount of your loan gets calculated. Make sure you have all of your information about payroll and other qualifying expenses at the ready before you begin.

Payroll and Non-payroll Costs

The EZ form is more straightforward than the long form, as the name suggests. This version asks you to calculate how you used loan proceeds to pay for approved uses. You’ll have to list out how much money from your loan went to:

●        Payroll costs

●        Business mortgage interest payments

●        Business rent or lease payments

●        Business utility payments

Payroll costs can include:

●        Healthcare plan payments (for businesses with employees)

●        Salary, wages, commissions, and tips (up to $100,000 for each employee on an annualized basis)

●        Employee benefits (which includes paid leave, severance pay, insurance premiums, and retirement benefits) 

●        State and local taxes, which are assessed on employee pay

Remember that, for self-employed borrowers, payroll costs can be considered any payments made directly to yourself from your loan—including disbursing the full amount to yourself. The SBA has indicated that self-employed persons healthcare benefit costs should be already included in net income reporting on Schedule C.  So self-employed persons are not permitted to separately list these costs as a payroll expense for forgiveness purposes.

This section will also ask you for the total amount of money you used from your loan to pay for business mortgage interest payments, business rent or lease payments, and business utility payments. If you used PPP funds for any of these additional purposes, include the total amount for each based on the corresponding category.

Adjustments for Full-Time Equivalency and Salary/Hourly Wage Reductions

If you’re filling out the EZ form, skip this section. If you have to fill out the long form, this is where things get slightly more complicated. You’ll have to crunch some numbers as they pertain to the number of staff you employed during your loan term, their cash compensation, non-cash compensation (e.g., health insurance or retirement plan contributions), hours on the job, and compensation paid to business owners. All of the information required in this section is explained in the PPP Schedule A worksheets, and discussed below in its own section.

Potential Forgiveness Amounts

This section serves as a preamble to the actual amount of forgiveness you’ll be applying for. It adds together several of the preceding lines to reflect how your PPP loan funds were spent, and if they were apportioned to the right expenses. What you enter on these lines will directly impact your actual forgiveness total, so be sure that your information is accurate so far.

Line 8, which calculates the “modified total” of the values you’ve entered in lines 6 and 7 of the application. Line 6 calculates all of the money spent from your loan total to cover payroll, mortgage interest, rent, and utilities. Line 7 accounts for your full-time equivalency (FTE) reduction, if there was any, during the covered period of your loan.

Lines 9 and 10 are straightforward. For line 9, just provide the total amount of the PPP loan you received. For line 10, take your line 1 total and divide it by .60. This number should reflect the percentage of your overall payroll costs and will help determine if you’ve allocated the right percentage of your loan toward payroll concerns.

Forgiveness Amount

This is your total forgivable loan amount, tabulated based on the information you provided on each of the other lines in the Forgiveness Amount Calculation section of the application. Enter whichever total is the smallest from lines 8, 9, or 10. This is the amount of money you are seeking to have forgiven on the application, so be sure you’ve arrived at the right calculations throughout the entire section.

Depending on how you used your funds, you may see either a portion of your total loan on line 11 or even the entirety of it. Borrowers who strictly followed the SBA guidelines should not be surprised if their forgiveness amount equals the total of their PPP loan. If, on the other hand, your entry for line 11 doesn’t reflect your loan total and you’ve made sure that you qualify for full forgiveness, reach out to your accounting department for more guidance.

Understanding and Filling Out Schedule A for PPP Loan Forgiveness

The long form application includes an additional page, called Schedule A, which includes several entry fields to help you determine total payroll costs and how they factor into the details you’ll provide in the “Adjustments for Full-Time Equivalency and Salary/Hourly Wage Reductions” section of the forgiveness form. 

PPP Schedule A Worksheet, Table 1 Totals

The first part of Schedule A, titled “Table 1 Totals,” accounts for how much you paid your employees out of the entirety of your PPP loan amount. Your completed data from Table 1 then goes into this section on each of the lines specified. 

Table 1 can be found on page four of the application. This table asks you to list out your employees’ names, an identifying number for the employee, their cash compensation (including salary/wages, commissions or tips received, paid leave, and severance pay), how many hours they work (even if full-time), and any reduction in their hourly wages or salaries. 

Note that you only need to include employees who are U.S. residents and employees that either made less than $100,000 in 2019 or are on track to make less than $100,000 for 2020. 

You can also account for employees who rejected offers to return to their job, were fired for cause, resigned, or requested a reduction in hours during the covered period of your loan. 

PPP Schedule A Worksheet, Table 2 Totals

The next section of Schedule A, titled “Table 2 Totals,” addresses employees that received compensation at an annualized rate of more than $100,000 in 2019 and were employees during the covered period of the loan (or the alternative payroll covered period, if applicable). The PPP was designed to cap employee payments at an annualized rate of $100,000, so the SBA wants to know how many employees might fall into this category for your business. You’ll also have to fill out their average FTE (more on that below).

Non-Cash Compensation Payroll Costs During the Covered Period

The “Non-Cash Compensation Payroll Costs During the Covered Period or the Alternative Payroll Covered Period” deals with expenses that you used your PPP loan to pay for in order to provide employees with benefits like health insurance and retirement plan contributions. You can also list out any payment of state and local taxes as based on employee compensation here as well. You’ll want to make sure you’re thorough here, as all of these expenses can be forgiven if accounted for properly.

Compensation to Owners

Businesses that paid out compensation to owner-employees, self-employed individuals, or general partners will need to reflect these totals in the “Compensation to Owners” section. In other words, any money paid out to business owners during the covered loan period needs to be reflected here. If more than one owner received compensation, you’d need to add a table that provides the names of each owner paid out, as well as the payments each of them received.

Total Payroll Costs

This section is relatively straightforward: all you’ll need to do is add lines 1, 4, 6, 7, 8, and 9 together to arrive at the total amount you’ve spent toward qualifying payroll costs during the duration of your loan.

How to Calculate Your FTE

This section addresses any reductions in staff or working hours that may have arisen during the covered period of your PPP loan. You can skip lines 11–⁠13 if you satisfy these three conditions:

  1. You kept your staffing/FTE the same during the term of your loan as it was earlier in 2020
  2. You couldn’t operate normally due to health regulations (i.e., FTE Safe Harbor 1)
  3. You ended up with a higher FTE at the end of your loan (or at the end of 2020) than you did when you got your loan, and your FTE as of February 15, 2020, was greater than your FTE average between February 15–April 26 (i.e., FTE Safe Harbor 2)

FTE is a way of reflecting how much staff you hired both before and during the duration of your loan, reflected as a number. You’ll want to make sure your FTE figure is as high as possible so that you can meet or exceed the PPP loan requirements for forgiveness. 

There are several FTE figures you’ll need to calculate as part of your forgiveness application. The first is your average FTE during a chosen reference period, which serves as your pre-loan benchmark for full-time equivalent figures. You can determine your average FTE from one of two reference periods: February 15, 2019–June 30, 2019, or January 1, 2020–February 29, 2020. Some in the accounting industry suggest that whichever period yields a lower FTE number may be the better option, as you will want this number to be as close to the FTE during your covered period as possible. This figure goes on Line 11.

The total average FTE during the covered loan period can be calculated in one of two ways. The simple way is to count full-time employees at working 40 hours per week each, and part-time employees at 20 hours a week each. You also have the ability to add up all employee weekly hours individually, of course. This may be helpful if you are unsure that you’ll be able to meet or exceed the FTE you calculated for your chosen reference period, as this will determine how much of your loan can be forgiven. 

Keep in mind that employees who were offered their jobs back, and rejected the offer, do not get counted against your FTE calculations. As long as you can document the offer and rejection, you will not be on the hook for these employees from an FTE perspective.

PPP Borrower Demographic Information Form

The SBA included this voluntary section of both the EZ and long form versions of the PPP loan forgiveness application to get a sense of how certain demographics factored into the overall program. You’re not obligated to provide this information; however, if you choose to do so, it’s as simple as listing your veteran status, gender, race (or ethnicity). 

How to File for PPP Loan Forgiveness

Borrowers will file for forgiveness through their lender—be it through a paper version of the application form or electronically. 

BlueVine is working on digitized versions of these forms within the platform. If your PPP loan originated with us, expect further communication in the days and weeks to come.

What to Expect After Filing for PPP Loan Forgiveness

So far, the specifics on what happens after filing your loan forgiveness application are scarce. More information is likely to come as the application process gets underway at the SBA. If your application for forgiveness is not forgiven or is only partially forgiven, you will be able to appeal the decision. Specifics on the appeals process are still forthcoming. The terms of the loan are five years, and the interest rate is 1 percent. Even in the worst-case scenario, a PPP loan is still much less expensive than a typical SBA loan, which is good news for borrowers.


The PPP Loan Forgiveness program is complicated, but the opportunity to have a fully forgiven loan is extremely advantageous for small business owners. The program has been a lifeline for many small businesses across the country. Although it may be beneficial to wait until further legislation is passed, applying for forgiveness is one of many smart business decisions to make as we ride out a turbulent economic period for entrepreneurs and business owners across the country. For further information regarding the forgiveness process, please consult the PPP Forgiveness Rules published by the Small Business Administration (SBA), in consultation with the Department of the Treasury.

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The information, opinions, and advice in this blog post are provided for educational purposes only, and do not necessarily state or reflect those of BlueVine and/or its partners, including The Bancorp Bank and Celtic Bank. Neither BlueVine nor its partners are responsible for the accuracy of any content provided by author(s) or contributor(s). For information about BlueVine products and services, please visit the BlueVine FAQ page.