Business Accounting

PPP Loan Forgiveness: Key Changes and Real Examples For Your Business

2020-07-20 | by Gene B. Reynolds, CPA

During this year’s pandemic, the CARES Act authorized the Small Business Administration (SBA) to make loans to qualified businesses. The provision established the Paycheck Protection Program (PPP), which provides cash flow assistance to eligible recipients through loans that are 100% backed by the federal government and have the ability to be forgiven if certain parameters are met.

Since its introduction, the PPP loan has gone through a significant change. On June 5th, 2020, President Trump signed the Paycheck Protection Program Flexibility Act (PPPFA) into law. The new Act changed the way the PPP loans can be forgiven compared to the original guidelines that were provided when the PPP loan was first created earlier this year.

The updated loan forgiveness guidelines under the PPPFA are designed to provide business owners increased flexibility in how they utilize PPP funds to support business continuity. The PPPFA also includes an important update on how to apply for loan forgiveness.

What Are the Changes to PPP Loan Forgiveness?

Both current PPP borrowers and potential new borrowers should be made aware of the changes to PPP loan forgiveness and how these changes apply to your business. We have captured the most important changes to PPP loan forgiveness, as outlined in the PPPF Act.

– Period of time to use loan proceeds: The period of time to use loan proceeds has increased to 24 weeks. The original time frame to use the PPP proceeds was 8 weeks.

– Proceeds used for payroll costs: The PPPFA lowers the percentage that loan proceeds must be used on payroll costs from 75% to 60% to qualify for loan forgiveness. Therefore, the amount that can be used on non-payroll costs (e.g. rent, mortgage interest, and utilities) has increased from 25% to 40%.

Business owners can apply the new 60/40 rule retroactively to the introduction of the PPP loan on March 27th. The caveat for business owners is that if PPP funds are used on less than 60% of payroll costs, then the PPP loan will be subject to partial forgiveness.

– Restoring headcount: Borrowers now have until December 31st, 2020, to restore full-time employment and salary levels. Previously, the deadline was June 30th.

Regarding the timeline, PPP borrowers have until Dec. 31st to restore full-time head count and salary for any workforce changes made between February 15th and April 26th. For the purposes of loan forgiveness, this excludes part-time employees. The SBA has clarified that the standard of full-time equivalent employees will be used to determine the extent to which the loan forgiveness amount will be reduced in the event of workforce reductions.

– Loan maturity change: The PPP loan maturity time period has changed from two years until five years under the PPPFA, effective June 5th.

Under the original terms of the PPP loan, borrowers were required to repay any unforgiven loan amounts within two years. Now, the PPPFA has changed the maturity period to five years.

While the new maturity period only applies to PPP loans issued on or after June 5th, the PPPFA has created a provision for borrowers and lenders to renegotiate the terms of any pre-June 5th loan to extend the maturity date.

– Loan deferral change: The PPPFA has extended the loan deferral period from six months to “until the date on which the amount of forgiveness determined under Section 1106 of the CARES Act is remitted to the lender.” What this means is the repayment period for any unforgiven portion of the PPP loan will begin when the forgiveness amount is determined by the SBA and paid to the lender.

This is important because the PPPFA added a requirement that borrowers must file for loan forgiveness within 10 months after the last day of the covered period, as defined in Section 1106, or the borrower forfeits the right to loan forgiveness.

Examples of the PPPF Act Changes For Your Business

Now that the PPPF Act has been introduced to provide greater flexibility to business owners using PPP loans, you may want to know how to apply the revised guidelines to your specific business situation. Consider the following examples.

– Example 1 on payroll costs: A borrower receives a $100,000 PPP loan. During the loan forgiveness period, the borrower uses $54,000 (54%) of the loan on payroll costs and $36,000 in non-payroll costs. The maximum amount of loan forgiveness the borrower may receive is $90,000 ($54,000 + $36,000).

Because the full 60% of the loan proceeds were not used for payroll costs, the borrower receives partial forgiveness.

– Example 2 on restoring headcount: Borrowers have until December 31st, 2020, to restore their full-time employment and salary levels for any changes made between Feb. 15th and April 26th. However, an employee that was previously released from the company has turned down an offer to return to the company. According to PPP loan forgiveness FAQs, the company will not be penalized.

According to the SBA, the PPP loan forgiveness amount will not be reduced if the borrower offers to rehire a laid-off employee but the employee declines the offer. The SBA has noted that they will be releasing a ruling on this specific issue and what will be required to be documented.

– Example 3 on loan maturity: The PPP loan is disbursed on June 25th, 2020, which means the 24-week period to use the funds ends on December 10th. If a loan recipient fails to submit a loan forgiveness application to the lender by October 10th, 2021 (10 months from June 25th, 2020), the borrower must begin payments on or after October 10th, 2021.

AICPA Introduces PPP Loan Forgiveness Tool

The AICPA (American Institute of Certified Public Accountants) introduced a PPP Loan Forgiveness tool in July that provides exceptional support for business owners seeking assistance with the loan forgiveness process.

The new PPP loan forgiveness platform,, includes a tool that will automate the forgiveness process for small business owners who received funds from the PPP. The website tool is free. It is designed to help business owners complete the PPP Loan Forgiveness Application with less paperwork to achieve significant time savings.

The tool is available to any business approved for a PPP loan, regardless of the lender or bank that provided them with funding. Borrowers can create an account on the platform and use the tool to fill out the forgiveness application and produce all government-mandated forms. Borrowers can then electronically sign the forms and download all required source documents to be provided to their lender for forgiveness.

Find Support for PPP Loan Forgiveness Questions

Every business owner is seeking the best path forward to receive forgiveness of their PPP loan. We understand that the PPP loan and the new changes contained in the PPPF Act can be challenging to digest while trying to run your business.

Our CPA firm can help your business by addressing specific situations. We can also work with you to walk through the new AICPA loan forgiveness tool. To discuss your PPP loan and to ask questions about how the PPPF Act affects loan forgiveness, contact our CPA firm for support.

Reach out to us for help through our website Contact form, by calling 713-316-4560, or via email at We look forward to helping your business!

About the Author

Gene B. Reynolds, CPA

Gene is the Founder and President of Reynolds and Associates, a Houston-based CPA Firm. He has spent 42 years helping Houston entrepreneurs navigate their enterprises through both calm and stormy waters.


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