CUSO Talk: PPP Loan Forgiveness
by Phil Love, Pactola President/CEO
CAP Senior Member

Since late February, our work lives have been similar to driving through a whiteout. All long-term plans have been thrown out the window and you are forced to focus on what is within the next 10 feet in front of you. The concern for performance in the next quarter has been replaced with wondering if you will get enough work completed to get at least 5-6 hours of sleep. 

One question that is popping up regarding the Paycheck Protection Program loan forgiveness is what the borrower should do now that the loan has closed. After all, isn’t everyone wanting free money? Wasn’t that the push behind the program? I would argue that the program is a mere tourniquet on a self-inflicted economic wound. It is hard to imagine how much worse this would be without PPP. We have had over 20.5 million people losing their jobs in the month of April alone and an unemployment rate up to 14.7 percent. PPP will help stop the bleeding for a little bit, but we better figure out how to reopen our economy as any future rounds of PPP will help but will not heal the issue.

Back to the forgiveness issue and the whiteout analogy. All you can give folks now is the best information available at this time and they must realize that more clear directions will come out once we drive further down the road. With that in mind, we tackle the following questions.

What is the time period that the borrower has to spend the PPP money that qualifies for loan forgiveness? An eight-week period starts when the funds are disbursed. All PPP loan funds are to be disbursed within 10 days of loan approval, unless the borrower has failed to provide necessary information for the lender to prepare closing documents. 

Can the amount of the loan that qualifies for forgiveness be reduced? Yes, if the borrower reduces staff or reduces payroll during the 8-week period compared to the time of application. This does not mean that the borrower has to keep the exact employees as at the time of application as replacement workers could be hired. If a 10-person office obtained a PPP and only rehired 9 employees, then 1/10th of the loan would not be eligible to be forgiven.

However, if a PPP borrower laid off an employee, then gets his PPP loan and offers to rehire the same employee but the employee declines the offer to rehire for the same hours and same rate of pay, the percentage available for loan forgiveness will not be reduced. The employer should document the offer and rejection in writing. The employee should also be aware that any rejection of offer of re-employment may forfeit eligibility for continued unemployment compensation.

Will the SBA review individual PPP files or is this all up to the lender? SBA states in its FAQ #31, that all loans in excess of $2 million will be reviewed and other loans may be reviewed as appropriate following the lender’s submission of the borrower’s forgiveness application. The outcome of the SBA’s review of the loan files will not affect the SBA’s guarantee of loan that the lender complied with SBA rules of underwriting requirements for the lender. 

How are payroll taxes counted toward the loan forgiveness? Eligible payroll is figured on the gross wages paid to employees. Any payroll taxes withheld from the employee is not considered. Likewise, any matching funds for the employer’s section of payroll taxes are not considered as eligible forgivable payroll expenses. State payroll taxes that are charged to the employer may be considered to be forgiven.

Is there a maximum amount of payroll per employee that may be forgiven? Any portion of an employee’s gross wages which exceed $100,000 annually would not be available to be considered for forgiveness. When you do the math, this would be any portion that is above $15,385 paid in the 8-week period to any one employee.

Can benefits paid to employees be considered to be forgiven? Yes, employer benefits such as premiums for health, dental, vision, life, disability insurances, retirement contribution matches on the employer’s part, or employer contributions to an HSA may be considered as forgivable payroll expenses. These do not appear to have any limitations on their forgiveness due to salary level.

Can PPP loan funds be used for other items outside of payroll and still be forgiven? Up to 25% of the PPP funds could be used in the 8-week period for utilities, rent, lease payments, or interest on mortgage payments made and these can be considered for forgiveness.

What items are required for loan forgiveness? The borrower must request forgiveness and provide supporting documentation for the qualified expenses during the 8-week period. This includes items such as Form 941s, state quarterly unemployment tax filings, detailed payroll reports from a third party, bills and canceled checks or bank statement information for employee benefit expenses, rental and lease expenses. Detailed mortgage statements are needed to determine the monthly interest expenses if this is part of the forgivable expenses. 

The SBA has issued guidance that a borrower who files a 1040 Schedule C or F can use the 2019 form that was provided at the time of application to determine the net profit allocated to the owner during this period, in addition to, any Form 941 and other payroll information regarding eligible payroll expenses. 

These items are submitted to your lender, who has 60 days after the submission to make a determination on loan forgiveness and submit this to the SBA. The SBA then has 90 days after the submission to pay the forgiveness along with all accrued interest through the date of payment. If any portion of the loan is not forgiven, then this will be amortized with monthly payments over the remaining original term of the loan at a 1% interest rate. 

How is PPP loan forgiveness treated on your income taxes? Treasury Secretary Mnuchin stated in an interview with Fox News, that the amount forgiven would not be treated as income, but the expenses paid for the forgiven amount could not be treated as business expenses; i.e. you cannot double dip to receive PPP forgiveness and take the business expense deductions. 

Again, this is what I understand as I write this. Be on the lookout for new guidance as we progress toward the end of the first 8-week period and forgiveness requests roll in.


Pactola is a CUAD CAP Senior Member and a subsidiary of Midwest Business Solutions. We are a Credit Union Service Organization that is dedicated to commercial and agricultural lending and serving multiple credit unions and banks throughout the United States with our services. We help our partners increase their earning assets and profitability. By doing so, we help them become a relevant financial force in their community increasing social good through helping businesses and farmers. Visit our website to learn more. You can contact Phil Love, Pactola CEO at or 605.223.5154.


<< Go to Memo List