7 step checklist for ppp loan forgiveness

The best part about a Paycheck Protection Program (PPP) loan is that it has the potential to be 100% free. That's right—when you use a PPP loan appropriately, you can get the entirety of your borrowed funds forgiven. The government essentially converts your outstanding loan into a tax-free grant.

However, you'll need to follow a few rules to be eligible for total forgiveness. These PPP loan forgiveness rules dictate when, where, and how you spend your funds, and they also establish guidelines for re-hiring employees.

Below, we've compiled a handy-dandy checklist to ensure you don't miss any important forgiveness nuances. Follow these 7 steps to guarantee you receive complete forgiveness on your PPP loan.

PPP Loan Forgiveness Checklist

1. Use Funds on Eligible Expenses

You can use your PPP funds on the following expenses:

• Payroll costs: Wages, tips, salary, commissions, bonuses, paid leave, retirement benefits, and group insurance benefits.

• Rent: Costs for any equipment, real estate, or vehicles with lease dates signed before February 15, 2020.

• Mortgage interest: Interest payments on mortgage debts made before February 15, 2020.

• Utilities: Fees for gas, electricity, water, transportation, internet service, and telephones for agreements made before February 15, 2020.

• Operations expenditures: Expenses for software, cloud computing, human resources, accounting, and services enabling remote work.

• Worker protection expenses: Costs to purchase protective equipment and adaptive investments to comply with federal health and safety guidelines.

• Property damage costs: Expenses for damages done due to 2020 public disturbances that your insurance didn't and won't cover.

• Supplier costs: Payments for agreements made to your suppliers—before obtaining a PPP loan—that are necessary to continue operations

If you spend funds outside of these categories, they likely won't be eligible for forgiveness.

2. Follow the 60/40 Rule

While you can spend your PPP loan on the eligible expenses above, you'll need to spend them in the appropriate proportions to qualify for full forgiveness.

You'll need to spend at least 60% of your loan on payroll costs. You can spend the remaining 40% on any of the other eligible expenses. If your payroll costs don't account for 60% of your loan amount, the forgivable portion will be deducted proportionally.

3. Spend During the Coverage Period

When you signed for your PPP loan, you either agreed to a 24-week or 8-week coverage period. This coverage period begins on the day your lender sends your first payment, which is likely not the day you signed your loan agreement.

Only eligible expenses incurred during the covered period will be eligible for forgiveness. Keep in mind that this is incurred, not necessarily paid. For example, you don't need to adjust your payroll schedule to fit the 24-week period, but you do need to ensure that expenses are incurred during this window.

4. Maintain Staffing Requirements

The government introduced PPP loans to protect jobs and ensure the economy didn't collapse. That's why they require employers using PPP loans to maintain the same number of employees they had on their payroll before the COVID-19 pandemic.

If you've laid-off employees for financial reasons, you'll need to re-hire them (or hire new employees) to increase your headcount. Don't panic if you can't hire back your employees—as long as you can prove that you attempted to re-hire them, the government should be willing to still provide complete forgiveness. However, ensure you attempt to re-hire the employee with the same wages, benefits, and expectations as before—also, document this conversation to include with your forgiveness application.

5. Maintain Salary Requirements

Along with staffing requirements, the government requires businesses to maintain a certain level of salary baselines. While wages and hours may have been reduced, you'll need to maintain at least 75% of your salary to be eligible for full forgiveness.

This is calculated on an employee-by-employee basis. That means hiring additional employees doesn't necessarily satisfy the salary requirement—you'll need to maintain each employee's wages to at least 75% of their previous total amount.

6. Send in Forgiveness Application Before Deadline

Submit your forgiveness application within 10 months of the end of your 8- or 24-week coverage period. 10 months is the length of the loan deferment period. If you miss this deadline, it's not the end of the world—however, you will need to start making loan payments with a 1% fixed interest rate and a 5-year term.

Your lender will send you (or already has sent you) the steps for submitting your loan forgiveness application. If you haven't received it yet, reach out to your PPP loan lender.

7. Provide the Necessary Documentation

Smaller PPP loans require less documentation, whereas the bigger loans demand a pile of paperwork. Loans for less than $150,000 only need a one-page certification that declares your loan's total amount, employees retained with the funds, and how much of the funds were spent on payroll costs.

Loans exceeding $150,000 require paperwork to authenticate your eligible expenses. Here's a list of what your lender will likely ask for:

• Payroll reports
• Payroll tax filings
• Health insurance invoices
• Income statements
• Employer-paid retirement plan receipts

Keep detailed records from the get-go of how you spend your PPP loan. Failure to do so could lead to some expenses becoming ineligible.

Full Forgiveness Is the Goal

The path and guidelines towards full forgiveness are straightforward. Don't wait to submit your forgiveness application to discover you misspent your funds or didn't retain the correct number of employees or salary. Monitor your spending and these requirements throughout the life of your loan (and especially during the coverage period) to guarantee you use the funds appropriately.

However, keep in mind that there's a middle ground between complete forgiveness and no forgiveness. Just because you spent 50% of your loan on payroll costs instead of 60% doesn't mean the entirety of your loan is unforgivable. No, your ineligible expenses will just be deducted proportionately from your total forgivable amount.

Make full forgiveness the goal, and use this checklist to make it happen.