Paycheck Protection Program loan forgiveness

Paycheck Protection Program loan forgiveness

Amy S. Matsuo

Amy S. Matsuo

Regulatory and ESG Insights Leader, KPMG US

+1 919-664-7100

Key points

  • Borrowers must attest to the accuracy of the reported information and calculations of forgiveness.
  • Lenders must confirm the borrowers’ loan forgiveness certifications, calculations, and documentation through a “good-faith review, in a reasonable time.”
  • SBA may review any loan, of any size, at any time in the loan forgiveness process. This is in addition to FAQ #39, which denotes that the SBA will review all loans in excess of $2 million. 
  • SBA and Treasury indicate that additional guidance is forthcoming but do not speak to potential Congressional amendments to the PPP.

The SBA and Treasury released two interim final rules governing the requirements for forgiveness of Paycheck Protection Program (PPP) loans. One rule outlines the loan forgiveness applications process and the second rule outlines the SBA’s loan review process and the related responsibilities of borrowers and lenders. The two interim final rules are intended to supplement all of the previously issued interim final rules released by SBA and Treasury on the PPP.

The PPP Loan forgiveness application form was released on May 15, 2020.

Highlights of the requirements for each of the interim final rules follow.

Loan forgiveness

Subject to limitations, PPP loans are eligible for forgiveness in an amount equal to the sum of the payroll and nonpayroll costs incurred and payments made during the “covered period” (defined below):

  • Payroll costs – including compensation in the form of salary, wages, commissions, or similar compensation; tips or reasonable estimate of tips; paid sick or other leave; allowance for separation; employee health and retirement benefits; and taxes.
  • Nonpayroll costs, up to 25 percent of the loan forgiveness amount – consisting of:
    • Interest payments on a business mortgage incurred before February 15, 2020.
    • Business rent payments on a lease agreement in force before February 15, 2020.
    • Business utility payments (electricity, gas, water, transportation, phone, internet) for service that began before February 15, 2020.

General process – for loans not reviewed by SBA prior to the lender’s decision on the forgiveness application:

  • The borrower must complete and submit the Loan Forgiveness Application (SBA Form 3508 or lender equivalent) to its lender/servicer.
  • The lender has 60 days from receipt of a complete application to issue a decision to SBA, and to request payment from the SBA (they must be submitted together) if the lender decides that the borrower is entitled to forgiveness of some or all of the amount applied for.
  • Subject to review, SBA will remit the appropriate forgiveness amount to the lender, plus interest accrued through the date of payment, not later than 90 days after the lender’s decision is issued. If SBA determines the borrower was ineligible for the PPP loan (based on the CARES Act, SBA rules or guidance available at the time of the borrower’s loan application, or the terms of the borrower’s loan application) the loan will not be eligible for forgiveness.
  • The lender is responsible for notifying the borrower of the forgiveness amount. Any portion of the loan not forgiven must be repaid by the borrower on or before the two-year maturity of the loan

Covered period

  • Costs eligible for forgiveness must be incurred or paid during eight consecutive weeks beginning on either i) the date of disbursement of the borrower’s PPP loan proceeds from the lender, or ii) the first day of the first payroll cycle in the covered period (referred to as the “alternative payroll covered period”).
    • Payroll costs incurred during the last pay period of the covered period must be paid on or before the next payroll date.
    • Compensation paid to furloughed employees is eligible for forgiveness subject to an annualized salary limit of $100,000, prorated for the covered period; hazard pay and bonuses are eligible for loan forgiveness, subject to a total compensation limit of $100,000 on an annualized basis.
    • Owner-employees and self-employed individuals compensation is limited to the lesser of 8/52 of 2019 compensation or $15,385 in total across all businesses.
    • Nonpayroll costs must be paid during the covered period or incurred during the covered period and paid on or before the next regular billing date.

Reductions to loan forgiveness

Reductions in a borrower’s loan forgiveness amount are required for reductions in full-time equivalent employees (FTEs) or in employee salary and wages during the covered period, subject to certain exemptions.


  • In general, a reduction in FTEs during the covered period reduces the loan forgiveness amount by the same percentage as the reduction in FTEs based on the borrower’s chosen reference period (detailed in the regulations). Certain exemptions apply:
    • Employees to whom the borrower offered to rehire, or offered to restore reduced hours, are generally exempt from the loan forgiveness reduction calculation provided: i) good faith, written offer; ii) offer for same salary or wage and same hours; iii) offer was rejected; iv) borrower retained records of the offer and rejection; and v) borrower informed the applicable state unemployment insurance office of the employees rejected offer.
    • Employees that are fired for cause, voluntarily resign, or voluntarily request a reduced schedule during the covered period will be counted at the same full-time equivalency as before the covered period; these employees are exempt from the FTE reduction penalty.
    • Reductions in FTEs between February 15, 2020 and April 26, 2020 that are eliminated by June 30, 2020 will be exempt from any reduction in the forgiveness amount.
  • An employee working 40 or more hours per week is considered one FTE. For employees working less than 40 hours per week, borrowers may select one of two methods for calculating all part-time FTEs: i) based on average part-time hours paid per week, or ii) assume one-half equivalency for all part-time employees. 
  • The reduction quotient is equal to average FTEs in the covered period divided by the average FTEs during the reference period.


  • In general, a reduction in an employee’s salary or wages in excess of 25 percent will result in a reduction in the loan forgiveness amount, unless an exception applies. The calculation is made on a per employee basis and applicable only to that portion of the decline in salary not attributable to a reduction in FTE for that employee.
    • Salaries and wages reduced between February 15, 2020 and April 26, 2020 that are eliminated by June 30, 2020 are exempt from reduction in the forgiveness amount.


Documentation requirements are outlined in the Loan Forgiveness Application Form; specific requirement are placed on borrowers to submit and maintain certain documentation (e.g., retain PPP documentation for six years after the date the loan is forgiven or repaid in full).

SBA loan review procedures and related borrower and lender responsibilities

SBA reviews

  • SBA may review any PPP loan, of any size and at any time, as deemed appropriate by the Administrator, including review of the borrower’s:
    • Eligibility based on SBA regulations and the information, certifications, and representations on the Borrower Application Form (SBA Form 2483 or lender equivalent) and the Loan Forgiveness Application Form (SBA Form 3508 or lender equivalent).
    • Calculation of the loan amount and use of the loan proceeds.
    • Loan forgiveness amount.
  • SBA will request additional information from the borrower and lender, as needed.
  • PPP loans may be forgiven only if the borrower is an “eligible recipient;” SBA may seek repayment of the outstanding loan balance or “pursue other available remedies.”
  • Borrowers may appeal an SBA determination that the borrower is ineligible for a PPP loan of ineligible for the loan amount or the loan forgiveness amount claimed by the borrower. (Additional guidance is forthcoming.)

Loan forgiveness process for lenders

  • For all PPP Loan Forgiveness Applications, lenders must confirm:
    • Receipt of the borrower’s certifications.
    • Receipt of the borrower’s documentation verifying payroll and nonpayroll costs.
    • The borrower’s calculations for compensation and nonpayroll costs by reviewing the documentation submitted.
    • The borrower correctly calculated the limitation on payroll costs (line 10 of Loan Forgiveness Application Form – 75 percent).
  • Lenders are expected to perform a good-faith review. If the lender identifies errors in calculation or a lack of substantiation in supporting documentation, the lender should work with the borrower to remedy the issue. SBA and Treasury indicate an accurate calculation of the loan forgiveness amount is the responsibility of the borrower, and borrower must attest to the accuracy of its reported information and calculations on the Loan Forgiveness Application.
  • Lenders must issue a decision to SBA within 60 days after receipt of a complete loan forgiveness application from the borrower.

Lender decisions:

Lender decisions may take the form of an approval, a denial, or, if directed by the SBA, a denial without prejudice pending SBA review of the loan. In the case of:

  • An approval, in whole or in part, the lender must confirm that the information provided by the lender to SBA accurately reflects the lender’s records for the loan amount and that the lender has made its decision in accordance with the requirements in the regulation (part 2.a.).  The lender must also request payment from the SBA at the same time. SBA will remit the forgiveness amount plus interest accrued no later than 90 days after the lender issues its decision to SBA, subject to any SBA review.
  • A denial, the lender must provide a reason for its denial and confirm that the information provided by the lender to SBA accurately reflects the lender’s records for the loan amount, and that the lender has made its decision in accordance with the requirements in the regulation (part 2.a.). The lender must notify the borrower in writing that the lender has issued a decision to SBA denying the loan forgiveness application.
    • SBA may review the lender’s decision in its sole discretion.
    • A borrower may request SBA review the lender’s decision within 30 days of the lender’s notice.
  • Loans subject to SBA review, the lender must notify the borrower in writing with five business days. The lender shall also provide SBA i) the Borrower Application Form and all supporting documentation, ii) the Loan Forgiveness Application Form and all supporting documentation, iii) a signed and certified transcript of account, iv) a copy of the executed note, and v) other documents requested by SBA. The lender may not approve any application for loan forgiveness until SBA notifies the lender in writing that SBA has completed its review.

Lender fees

  • Lenders will not receive a processing fee for loans determined by SBA to be ineligible for the PPP.
  • SBA will seek repayment of processing fees if, within one year after a loan was disbursed, SBA determines a borrower was ineligible for a PPP loan.
  • SBA will seek repayment of processing fees, and may find a loan not eligible for guaranty, if a lender fails to satisfy its obligations under the PPP regulations, including the document collection and retention requirements.



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