[Update 6/07/2020]: This article has been updated to align with the Paycheck Protection Program Flexibility Act signed into law Friday, June 5. We will continue to monitor how the PPPFA changes loan forgiveness. Read more about the Paycheck Protection Program Flexibility Act here.
Whether you've scored a PPP loan or you're in the process of applying for one, the big question is— how much of my loan will be forgiven? Forgiveness is based on many factors, so we've put together a calculator to estimate how much of your loan may be forgiven.
PLEASE NOTE: The PPP Forgiveness Calculator and following material is intended for general informational purposes only and does not constitute legal advice. This information is based on our current interpretation of the program. Please consult your lender or professional advisor about your individual circumstances before making any financial decisions.
Steps for Calculating PPP Loan Forgiveness
Step 1: Track eligible payroll costs during your covered period.
At least 60% of the principal loan amount must be used to cover payroll costs. If less than 60% is used for payroll, the forgiveness will be reduced.
Step 2: Track all other eligible expenses during your covered period.
Up to 40% of your loan can be used for rent, utilities, and interest on covered mortgages.
Step 3: Determine the average number of full-time equivalent employees you have at the end of your covered period.
The SBA defines full-time equivalents as employees working at least 40 hours a week or a group of employees accumulating 40 hours. To make it easy, the SBA created a simplified method to calculate FTEs:
- Each employee working at least 40 hours a week equals 1 FTE
- Each employee working under 40 hours a week equals 0.5 FTE
Alternatively, borrowers can take the average number of hours paid per week for each employee at the end of the covered period divide by 40, and round the total to the nearest tenth with the maximum capped at 1.0.
Step 4: Determine the average number of full-time equivalent employees prior to applying for a PPP loan.
You may use the same time period used to calculate your average monthly payroll costs to determine average employment. Alternatively, you can use SBA’s usual calculation: the average number of employees per pay period in the 12 months (or however long your business has been in operation) before you applied for the loan.
Step 5: Calculate total dollar amount of decreased wages (if wages were decreased by 25% or more).
Your forgiveness will be reduced by the difference (in dollars) between the reduced pay rate and 75% of the average rate for each employee. The best way to do this is to calculate your employees' (who earn less than $100,000 annually) average weekly wages during the first quarter of 2020 and compare that number to their average weekly wages during the covered period.
Step 6: Deduct EIDL advance amount.
If you received an Economic Injury Disaster Loan Advance from the SBA, your loan forgiveness will be reduced by the advanced amount.