Understanding the Paycheck Protection Program (PPP) Loan Forgiveness Application

The Small Business Administration (SBA) recently released the much-anticipated Paycheck Protection Program (PPP) Loan Forgiveness Application. The application provides step-by-step instructions to calculate loan forgiveness. There are still some concerns not addressed in the application, but the form provides clarification of the PPP covered period and payroll costs eligible for forgiveness, including any required reductions. You can access the application form here.


PPP borrowers should be aware of the following loan forgiveness rules as indicated in the application form:


  • Flexibility on the start of the 8-week covered period for borrowers with a weekly or biweekly payroll schedule. An “alternative payroll covered period” is created, when the start date begins on the first day of the first pay period following their PPP loan disbursement date.

Example: If a borrower receives the PPP funds on Monday, April 20th, and the first day of its first payroll period following the PPP loan disbursement is Saturday, April 25th, the first day of the alternative covered period is April 25th and the last day is Saturday, June 20th.

The alternative payroll covered period only applies to payroll costs. Borrowers must still use the original covered period, beginning on the date PPP funds are disbursed, for other non-payroll costs.


  • Clarity on costs paid vs. incurred during the covered period. All payments made during the covered period are eligible for forgiveness. Borrowers may pay costs associated with payroll, rent, interest or utilities related to periods before the start of the 8-week covered period and designate these costs to be forgiven.

Payroll costs incurred during the covered/alternative payroll covered period can be included in the forgiveness amount as long as they are paid on or before the next payroll date, even if that date is after the covered/alternative payroll covered period.

Non-payroll costs (rent, interest or utilities) incurred during the covered period can be included in the forgiveness amount as long as they are paid before the next billing date, even if that date is after the covered period.


  • Reduction in payroll costs that can be forgiven based on the number of average full time employees. To calculate employee counts, one full time equivalent (FTE) is based on a work week of 40 hours or more. Example: An employee working 30 hours per week is designated at .75 FTE. The borrower may also elect to use a .50 FTE equivalent for any employee working less than 40 hours.


  • Safe-harbors to avoid a reduction of the payroll costs eligible for forgiveness. Borrowers are exempt from loan forgiveness reductions under the following conditions:

a) The borrower made a good-faith, written offer to rehire an employee during the covered period or the alternative payroll covered period which was rejected by the employee.

b) Employees were fired for cause, voluntarily resigned, or voluntarily requested a reduction of their hours during the covered period or alternative payroll covered period.

c) The borrower reduced its average FTE employees in the period beginning February 15, 2020, and ending April 26, 2020. The borrower then restores its FTE employee levels by June 30, 2020 to its FTE employee levels in the pay period that included February 15, 2020.

d) Schedule A of the Loan Forgiveness Application provides another safe harbor. Even if FTEs are reduced, there will be no reduction in loan forgiveness if the number of FTEs at the end of the covered period is the same as the number of  FTEs on January 1, 2020 or if the average paid hours at the end of the covered period is the same as the average paid hours on January 1, 2020.


  • Covered rent and covered mortgage obligations include both real and personal property.   


These are just a few of the loan forgiveness rules include in the new application. We expect the SBA to issue additional guidance, specifically for owner employees, partners and self-employed individuals.


We are here to help you navigate various COVID-19 pandemic relief programs available to your business. Please connect with us for guidance.