SBA Updates PPP Forgiveness Guidance: The Good News and The Bad News


By: Justin Boron

If you borrowed less than $2 million for all of your businesses under the Paycheck Protection Program, you can feel re-assured that you won’t be questioned by the government on whether you really needed the money.

The Small Business Administration made clear that those circumstances amount to a good-faith certification of need under the PPP’s requirements. 

That doesn’t mean that you are home free.  There are still important limits to how you spend the money so that when you apply for forgiveness, you can in good-faith certify that your business used the money to retain employees, make interest payments on a covered mortgage obligation, make payments on a covered rent obligation, or make covered utility payments, according to the guidelines.

Fortunately, the SBA recently published a model forgiveness application that instructs borrowers on important issues related to how they can spend their PPP money to maximize forgiveness.

Probably No Bonuses for Owner-Employees, Self-Employed, and General Partners

The PPP’s most recent guidance on forgiveness caps compensation for “owner-employees,” self-employed individuals, and general partners to “the eight-week equivalent of their applicable compensation in 2019.”

If you fit one of those categories and you made more than $100,000 last year, that means your forgivable compensation over the eight-week forgiveness period cannot exceed $15,385. 

If you fit one of those categories and paid yourself less than $100,000 last year, that means your forgivable compensation over the eight-week forgiveness period cannot exceed the eight-week equivalent of your compensation in 2019.

Without saying it expressly, the SBA’s guidance tells business owners that they may not increase their compensation or pay themselves bonuses using PPP funds for which they seek forgiveness. However, there is still an open question about whether the SBA will forgive compensation in the form of bonuses for non-owner employees.

Timing of Forgiveness Period

To obtain full forgiveness of the loan, the PPP requires the borrower to spend all of the loan proceeds—and at least 75 percent on payroll costs—in the eight weeks from when the loan is disbursed.  That requirement has proved daunting to some employers, particularly seasonal ones or those whose employees refuse to return to work.

There was hope that before it adjourned Thursday, the Senate would pass a House-approved bill that extended this period.  But that did not happen.  As a result, the eight-week period remains in place.  But the most recent SBA guidance does provide some limited flexibility.

First, it allows employers to line up the eight-week forgiveness period with their payroll using the Alternative Payroll Covered Period.  Second, it makes clear that forgivable expenses must be either paid or incurred during the eight-week forgiveness period.  Additionally, costs incurred during the eight-week period but paid outside of it must be paid during the next regular payroll or billing date.

Full-Time Equivalent Employees

The PPP requires a reduction in the forgiveness amount of a loan if an employer fails to maintain certain headcount levels of employment.  The PPP measures this head account according to Full-Time Equivalent (FTE) employees.  But the PPP didn’t define FTE.

Although the SBA and the Internal Revenue Code had defined this term in other contexts like the Affordable Care Act, the SBA chose a different definition than used in those contexts.  For purposes of the PPP, an FTE is a person that averages at least 40 hours per week during the relevant period or the combination of multiple employees whose part-time hours add up to 40 hours per week.

Here’s how you calculate your FTE level according to the SBA guidance:

For each employee, enter the average number of hours paid per week, divide by 40, and round the total to the nearest tenth. The maximum for each employee is capped at 1.0. A simplified method that assigns a 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work fewer hours may be used at the election of the Borrower.


The PPP also requires a reduction in the forgiveness amount of a loan based on an employee pay reductions.  Frankly, the statute that Congress passed didn’t make sense and would have inevitably resulted in a reduction in forgiveness if the language was applied literally as it read.  Fortunately, the SBA’s guidance fixed what was likely a drafting error: as long as an employer maintains 75 percent of its salary or wage levels when compared to the first quarter of this year, it can avoid reductions in forgiveness.

If you don’t do that, it gets complicated.  On page 7 of its forgiveness application, the SBA has supplied the formulas to use in its model forgiveness application.  You should work closely with a legal or accounting professional in assessing the reduction in forgiveness based on compensation reductions.

If you have questions or would like more information, please contact Justin Boron at