PPP Loan Forgiveness: Rules, Requirements, & What To Do If You Still Owe

The Paycheck Protection Program officially ended on May 31, 2021, and the window to apply for loan forgiveness has closed for most borrowers. But if you never applied, received partial forgiveness, or are still carrying a balance, there are still important steps to take.

In this guide, we’ll cover what you need to know about PPP loan forgiveness, what happens if you still owe on your loan, and where to turn if you have outstanding questions.

PPP Loan Forgiveness Requirements

For most borrowers, the forgiveness window has passed. The information below is provided as historical reference.

To qualify for full forgiveness, borrowers had to meet six key requirements:

• Use funds for qualifying purposes — primarily payroll and other eligible expenses
• Spend funds within 24 weeks of disbursement
• Follow the 60/40 rule: At least 60% of funds had to be spent on payroll, with the remaining 40% on other qualifying expenses
• Maintain full-time staff at pre-pandemic headcount levels
• Maintain payroll: Salaries of employees earning under $100,000 could not be reduced by more than 25%
• Document all expenses: Payroll records, bank statements, receipts, and tax forms were required

Failure to meet any of these requirements could result in partial or full repayment of the loan.

What Expenses Qualified For PPP Loan Forgiveness?

To qualify for forgiveness, borrowers were required to spend PPP funds on eligible expenses, including payroll costs, mortgage interest, rent, utilities, software and operational expenses, necessary supplier costs, COVID-related protective measures, and EIDL refinancing in certain cases.

At least 60% of funds had to be spent on payroll costs. The remaining 40% could be used on other qualifying expenses. Documentation, including payroll records, bank statements, receipts, and tax forms, was required to verify all expenses.

Second Draw PPP Loans: Forgiveness Requirements

Businesses had to demonstrate at least a 25% reduction in gross receipts in 2020 relative to 2019. This could be shown using either an annual comparison or a quarter-over-quarter comparison.

PPP Forgiveness For Sole Proprietors

Sole proprietors were also eligible to receive PPP loans. Here’s what applied for forgiveness:

• Salary Replacement: Income listed on a Schedule C or Schedule F could be replaced using PPP funds, up to a maximum of $100,000.
• 60/40 Rule: The 60/40 rule applied to sole proprietors as well. At least 60% of PPP funds had to be used for payroll, although some borrowers opted to use 100% of loan proceeds to replace their salaries.
• Health Insurance Premiums & Retirement Plans: Health insurance premiums and retirement contributions for the sole proprietor or their family were not eligible for forgiveness. Expenses paid for employees, however, could qualify.

What If I Still Owe On My PPP Loan?

If your PPP loan was not fully forgiven, or if you never applied for forgiveness, you are responsible for repaying the outstanding balance. Here’s what you need to know:

• Interest rate: PPP loans carry a 1% interest rate
• Repayment term: Loans issued after June 5, 2020 carry a five-year term. Earlier loans originally had a two-year term, though many borrowers modified these to five years.
• Payments: If you did not apply for forgiveness within 10 months of your covered period ending, your loan is no longer deferred and monthly payments are required

Common reasons a loan may not have been fully forgiven include using more than 40% of funds on non-payroll expenses, reducing employee headcount, or reducing employee wages by more than 25%.

If you have questions about your outstanding balance or repayment options, contact your original PPP lender or the SBA directly at 1-800-659-2955 or SBA.gov.

What If I Never Applied For Forgiveness?

If you received a PPP loan and never applied for forgiveness, you may still have options, but time is running out.

Technically, borrowers can apply for forgiveness any time up to their loan’s maturity date. For loans issued before June 5, 2020, the maturity date is two years from disbursement. For loans issued after June 5, 2020, the maturity date is five years, which means some borrowers may still have a window to apply in 2026.

However, there is an important caveat. If you did not apply for forgiveness within 10 months of the end of your covered period, your loan is no longer deferred, and monthly payments are required. Missing this deadline does not disqualify you from forgiveness, but you will need to make payments while your application is being processed.

To check whether you still have time to apply:

• Log in to the MySBA loan portal at MySBA.gov to verify your loan status and maturity date
• If your loan is still active, apply for forgiveness through the SBA Direct Forgiveness Portal at SBA.gov or through your original lender

If your loan maturity date has already passed, forgiveness is no longer available, and full repayment is required. Contact your lender or the SBA at 1-800-659-2955 to discuss your repayment options.

Bottom Line On PPP Loan Forgiveness

The PPP program may be over, but its financial and tax implications are still very real for many borrowers. Whether your loan was fully forgiven, partially forgiven, or remains outstanding, understanding your obligations is essential.

If you still carry a balance, repayment terms are typically manageable, but ignoring the loan is not an option. If you never applied for forgiveness, you may still have time depending on your loan’s maturity date.

When in doubt, your best next step is simple: contact your lender, review your loan status in the MySBA portal, and clarify your options. PPP confusion is common, but unresolved PPP debt can create avoidable financial headaches.