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What is the loan forgiveness covered period for a PPP loan?

Disclaimer: Regulations and guidance from the SBA and the U.S. Department of Treasury on the PPP are evolving rapidly. Please refer to the latest guidance from SBA and Treasury to confirm current program rules.

Through the  Paycheck Protection Program  (PPP), small business owners and other eligible organizations can apply for first-draw loans of approximately 2.5x their average qualified monthly payroll expenses, up to $10 million. Borrowers can use these loans to cover  eligible payroll costs , and other eligible non-payroll costs, including rent, mortgage interest, and utilities. PPP  loans may be forgivable , in whole or in part, if borrowers meet certain requirements.

In order to maximize the potential for loan forgiveness, business owners should adhere to the following requirements, among others:

  • Maintain the average number of full-time employees on the payroll for the loan forgiveness covered period following the disbursement of the loan.
  • Maintain employee salaries and wages for the loan forgiveness covered period following the disbursement of the loan.
  • Spend at least 60% of the loan on eligible payroll costs and no more than 40% on additional eligible non-payroll costs within the loan forgiveness covered period.

Reducing employee headcount or wages by more than 25% during the covered period after you received your PPP loan proceeds from your lender may reduce the amount of loan forgiveness.

For more information about loan forgiveness, please refer to the  loan forgiveness application .

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What is the loan forgiveness covered period?

Each borrower has a “loan forgiveness covered period,” which is the period of time during which you’ll need to use your loan funds if you’re hoping to maximize your forgiveness amount.

Your loan forgiveness covered period generally begins on the date you received your PPP funds (or if you received them on more than one date, the first date you received PPP funds), and ends on a date selected by you between 8 to 24 weeks thereafter. You don’t have to use all your loan proceeds during the loan forgiveness covered period, but only eligible costs paid during that period (and certain eligible costs incurred but not paid during that period) are eligible for forgiveness. Costs incurred after the loan forgiveness covered period won’t be forgiven.

What happens after the loan forgiveness covered period?

Borrowers who use PPP funds on eligible expenses within the loan forgiveness covered period may apply to have that portion of their loans forgiven. Amounts spent after the covered period are not eligible for forgiveness.

Business owners can begin applying for loan forgiveness with their lender any time before the maturity date of the loan if the business owner has used all of the proceeds for which it is requesting forgiveness. If the business owner does not apply for forgiveness within ten months from the last day of the maximum 24-week covered period, the loan is no longer deferred and the business owner must begin repaying principal and interest. Lenders have up to 60 days from the time they receive the loan forgiveness application to make a decision.

Leftover PPP funds not spent during the covered period are not eligible for forgiveness. Borrowers will have to repay the remaining funds to their lenders at 1% interest with a 5-year term. Loan payments will be deferred for up to ten months after the end of the covered period but will start incurring interest immediately. PPP loans have no fees and no prepayment penalties.

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