Plan ahead to maximize your PPP Loan Forgiveness

Apr 14, 2020 | Blog

I have my PPP Loan…Now What?

If you are one of the small businesses who have received a Payroll Protection Program loan, you should start planning now to maximize the loan forgiveness.  While lenders are still awaiting the final guidance from the SBA on how the loan forgiveness will work, there are a few key guidelines from the interim rules provided already.

The Eight-Week clock is important

This starts once the funds hit your account.  You must spend those funds within the next eight weeks in order to qualify for loan forgiveness.  Remember, the forgiveness is based on your actual spend, with 75% of the loan amount required to be spent on payroll costs.  You will have to demonstrate via payroll records what was spent on eligible payroll costs, remembering that any individual compensation over $100k doesn’t count.  Payroll costs as defined include wages, salaries, commissions, tips, severance pay, etc.  Record keeping will be critical.

You can then spend up to 25% of your PPP loan on covered rent, mortgage, and utilities.  To be covered these had to be in effect prior to February 15, 2020.

As you plan out your anticipated eight-week spend, if your anticipated payroll expenses are not expected to hit 75% you could use it for special compensation to your staff, say a “retention” or “thank you” bonus.

Manage the impact of any reductions

In addition to the required 75% being spent on payroll costs, your loan forgiveness will also be impacted by any reductions in FTE or salary.  If you are not familiar with the term “FTE”, it stands for “Full Time Equivalents” and is a common workforce/HR term used to designate the number of 40 hour employees you have.  Since some of your employees are part-time, you derive your FTEs by calculating the total hours during a period and dividing by 40 for the week.  In the case of the PPP loans, you then will compare your average FTE for the eight-week loan period to a baseline period of either 2/15/19 – 6/30/19 or 1/1/20 – 2/29/20, whichever period has fewer FTEs.  If you have fewer FTEs in comparison to the baseline, you will receive a proportionate reduction.

The Salary Reduction component is similar.  In this case, you need to identify all employees paid during the eight-week period whom were also employed at any point in 2019 and who do not make more than $100,000.  You will then have to determine their average weekly rate paid during Q1 of 2020.  If the weekly rate paid during the eight-week period is at least 75% of the Q1 average there is no further reduction in loan forgiveness.  However, if it is less than 75%, the amount of the portion of reduction more than 25% will be reduced from the loan forgiveness dollar for dollar.

But doesn’t the CARES Act allow us to correct this by June 30?

The Act does include a “fix” for both the headcount and salary related reductions to forgiveness if you “have eliminated” the reductions by June 30th.  The SBA indicated further guidance on this will be forthcoming, but the reality is we don’t exactly know what it will take to qualify for the fix (yet) or what the term “have eliminated” means.  Our best advice is to maximize your loan forgiveness as noted above.

A final thought

Given the part of the loan that is forgiven is also not counted as income and is tax free, there are obvious benefits to maximizing the forgiveness.  Still, if business realities hit and you are not able to have the entire loan forgiven, don’t forget that at worst this amount is a 1% loan with a two year payback period that required no collateral or personal guarantee.  Very favorable terms indeed.

If you already have the loan forgiveness planning well in hand, we advise you to start thinking what lies after the eight-week period, especially if you are in an industry that may not bounce back as quickly.  Planning now for how you will handle your workforce and expenses is critical.  We will be talking more about this in later communications.

As always, please reach out if you have any questions.   The CTCS Group is here to help.

Chris Thomas, SHRM-SCP is the Principal Consultant with The CTCS Group in Canton, GA.  The CTCS Group is focused on providing HR Leadership, Behavioral Assessments, and Consulting to help small businesses grow and thrive.  You can subscribe to this blog or request a free consultation at

Disclaimer:  The information and recommendations provided in this document should not be considered legal advice and should not substitute for legal advice where the facts and circumstances warrant.  Recommendations are provided based on good faith assessment and interpretation of the available legal and regulatory resources.


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