What Does It Mean to Forgive?

For those of you who have been funded under the Payroll Protection Program (PPP) the next most important consideration for you to contemplate is how much of the loan you received can be forgiven. While The SBA has not issued final regulations on exactly how to calculate the forgiveness portion of the loan, the attached calculator should help you determine how to get there.

Following are some key questions and information you will need to quantify the forgivable portion:

What amounts of my PPP are eligible for forgiveness?

The following incurred costs and payments made during the “covered period” are eligible for forgiveness:

1. Payroll costs that are consistent with the amount used on the PPP loan application
2. Payment of interest on covered mortgage obligations (in place prior to 2/15/20)
3. Payment on covered rent obligations (in place prior to 2/15/20)
4. Covered utility payments (service in place prior to 2/15/20)

Important points:

  • At least 75% of the loan proceeds must be used for payroll costs.
  • There has been much discussion about the requirement, as currently worded in the CARES Act, for the costs to be both incurred and paid. We expect that the SBA will provide further clarification on this requirement when they issue additional guidance.

What is my “Covered Period”?

The Covered Period is the 8-week period that begins on the date the lender makes the first disbursement of the PPP loan to the borrower.

What else do I have to consider in regard to loan forgiveness?

1. Non-Payroll Costs:  Not more than 25% of the loan forgiveness amount may be used for non-payroll costs. Non-payroll costs include mortgage interest, rent and utilities. Any other type of costs paid do not count at all towards loan forgiveness.
2. Number of Staff: Your loan forgiveness will be reduced if you decrease your employee headcount.

  • % Reduction = (average monthly # of FT employees during covered period) ÷ (either i or ii below, at borrower’s election)

i Average monthly # of FTE’s from 2/15/19-6/30/19; OR
ii Average monthly # of FTE’s from 1/1/20-2/29/20
*Note, seasonal employers must use (i)

3. Level of Payroll: Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized.

  • If an employee’s cash payroll over the covered period is less than 75% of the cash payroll the employee received during the most recent full quarter in which they were employed prior to the covered period, the eligible amount for forgiveness will be reduced by the difference between the employee’s cash payroll during the covered period and 75% of the employee’s cash payroll for the most recent quarter.

4. Re-Hiring/Wage Adjustments: You have until June 30, 2020 to restore your employment and salary levels to meet the requirements for forgiveness. However, please note that timing may impact your ability to meet the condition that requires at least 75% of the loan proceeds be used for payroll costs.

What happens if some of the loan is not forgiven?

The portion of the loan that is not forgiven will be turned into a two year loan at a 1% interest rate with no payment due for 6 months. There is no personal guarantee nor collateral requirement.

Should a separate bank account be established for PPP Loan proceeds and disbursements?

While there is no requirement to establish a separate account, we think it is a good idea. It may be useful from a tracking and documentation perspective to not have the PPP loan proceeds co-mingled with other funds. Even more importantly, it will be easier to document that the proceeds were used for eligible costs and to support amounts included in the Loan Forgiveness application.

Spoiler alert:
It is expected that the SBA will issue additional guidance on the Loan Forgiveness process under the PPP program which may change some of the information here and especially the calculation of the forgivable portion. We will share that information once it is available.

We wish you full forgiveness!

The partners and staff LHF

Don’t hesitate to email or call us with any questions.


L.H. Frishkoff & Company

546 Fifth Ave. New York, NY 10036

565 Taxter Road, Elmsford, NY 10523

L.H. Frishkoff & Company

546 Fifth Ave. New York, NY 10036

565 Taxter Road, Elmsford, NY 10523