SBA, Treasury Interim Final Rule on PPP Loan Forgiveness Requirements | News | APMA
SBA, Treasury Interim Final Rule on PPP Loan Forgiveness Requirements

June 1, 2020

PPP loan forgiveness application

The US Small Business Administration (SBA), in partnership with the Department of the Treasury, issued an interim final rule (IFR) with comment period last week, addressing loan forgiveness requirements for the Paycheck Protection Program (PPP). This new rule, which is effective immediately, addresses:

  • the loan forgiveness process;
  • payroll costs eligible for loan forgiveness; and
  • reductions to loan forgiveness amount.

Loan Forgiveness Process

In order for a PPP recipient to receive loan forgiveness, a borrower must complete and submit the Loan Forgiveness Application (SBA Form 3508 or lender equivalent) to its lender or the lender servicing its loan. Once the application is submitted, the lender has 60 days to review the application and make a decision to submit to the SBA regarding loan forgiveness. If the lender determines that the borrower is entitled to complete or partial forgiveness of the PPP loan, the lender must request payment from the SBA at the same time its decision is submitted. The SBA has 90 days to review the loan and loan application and then remit the appropriate forgiveness amount to the lender. If applicable, the SBA will deduct any EIDL Advance Amounts from the forgiveness amount remitted to the lender. The lender is responsible for notifying the borrower of the forgiven amount, and any remaining balance due on the loan must be repaid before the two-year maturity date of the loan. The SBA states in the IFR that an additional IFR will be issued on SBA procedures for reviewing PPP loan applications and loan forgiveness applications.

Payroll Costs Eligible for Forgiveness

The SBA provides additional clarifications to the frequently asked questions they received about what payroll costs are eligible for forgiveness. This information provides clarity on when payroll costs must be incurred and/or paid to be eligible for forgiveness. It also confirms that salary, wages, or commission payments to furloughed employees, as well as bonuses and/or hazard pay during the covered period, are eligible for loan forgiveness and that there are caps on the amount of loan forgiveness available for owner-employees and self-employed individuals’ own payroll compensation (whichever is the lesser of 8/52 of 2019 compensation or $15,385 per individual in total across all businesses).

Non-Payroll Costs Eligible for Loan Forgiveness

The SBA provides clarifications to when non-payroll costs must be incurred and/or paid to be forgiven. A non-payroll cost will be eligible for forgiveness if it was:

  • paid during the covered period; or
  • incurred during the covered period and paid or on or before the next regular billing date, even if that billing date is after the covered period.

The IFR also confirmed that advance payments of interest on mortgage obligations are not eligible for loan forgiveness.

Reductions To Loan Forgiveness Amount

The SBA and Treasury are adopting a regulatory exemption to the reduction rules for borrowers who have offered to rehire employees or restore employee hours, even if the employees have not accepted. Specifically, in calculating the loan forgiveness amount, a borrower may exclude any reduction in full-time equivalent (FTE) employee headcount that is attributable to an individual employee if:

  • the borrower made a good faith, written offer to rehire such employee or if applicable, restore the reduced hours of such employee during the covered period or alternative payroll covered period;
  • the offer was for the same salary or wages and the same number of hours earned by such employee in the last pay period prior to the separation or reduction in hours;
  • the offer was rejected by such employee;
  • the borrower maintained records documenting the offer and its rejection; and
  • the borrower informed the applicable state unemployment insurance office of such employee’s rejected offer of re-employment within 30 days of the employee’s rejection of the offer.

The IFR also reaffirms that in general, a reduction in FTE employees during the covered period or the alternative payroll covered period reduces the loan forgiveness amount by the same percentage as the percentage reduction in FTE employees. It defines an FTE employee as an employee who works 40 hours or more. For employees who work fewer than 40 hours, their hours are calculated as proportions of a single FTE employee and aggregated. When calculating the number of FTE employees, borrowers seeking forgiveness should document their average number of FTE employees. The IFR notes that an employee who works more than 40 hours a week during the covered period will still be considered as one FTE, regardless of hours in excess of 40. For employees working fewer than 40 hours per week, the IFR provides two methods of FTE calculation:

  • calculate the average number of hours a part-time employee was paid per week during the covered period—i.e., an employee who was paid for 30 hours per week on average during the covered period could be considered an FTE employee of 0.75; or
  • for administrative convenience, borrowers may elect to use an FTE of 0.5 for each part-time employee.

Please note, borrowers may select only one of these two methods, and must consistently apply the same methodology to all part-time employees for the covered period or the alternative covered period and selected reference period.

Additionally, the IFR addressed the effects that a borrower’s reduction in an employees salary or wages would have on the loan forgiveness amount as well as how borrowers seeking loan forgiveness should account for the reduction in the number of employees relative to the reduction relating to salary and wages. It also confirmed the following:

  • that if a borrower restores reductions made to employee salaries and wages or FTE employees by not later than June 30, 2020, the borrower will avoid a reduction in its loan forgiveness amount; and
  • if an employee is fired for cause, voluntarily resigns, or voluntarily requests a schedule reduction, the loan forgiveness amount will not be reduced.

To read the IFR in full, visit To see all of the information related to the PPP and other COVID-19 related resources, visit


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