PPP Update: Loan Forgiveness and Paying Off Your Loan

Quick Recap: 100% of the PPP loans (principal and interest) are eligible to be forgiven, so long as borrowers used the money to maintain their payrolls at about the same levels as before the COVID-19 outbreak and spend their PPP loan within the PPP guidelines.[1]

Forgiveness Period

You may submit a loan forgiveness application any time before the maturity date of your PPP loan, which is either 2 or 5 years from the loan’s origination, depending on the agreement with your lender.

Extended Deferral Period

The Paycheck Protection Program Flexibility Act of 2020 (the “Flexibility Act”) extended the deferral period for borrower payments of principal, interest, and fees on all PPP loans from 6 months to the date on which the amount of forgiveness is remitted by the SBA to the lender. The new guidance, found in question No. 52 in the SBA’s FAQs, clarifies that the deferral period extension automatically applies to all loans, with no requirement from the SBA of a formal modification of the promissory note.

Note that if you do not apply for loan forgiveness within 10 months after the last day of your loan forgiveness covered period, your PPP loan payments are no longer deferred and you must begin making payments on your PPP loan.[2]

Loan Forgiveness Application

You must file a forgiveness application with your lender. The SBA and Treasury Department have issued three different application forms: Form 3508, Form 3508EZ, and Form 3508S. Selecting the correct form will depend on the nature of your business, the loan size and whether you reduced employee head count or salaries and wages.[3] Your lender can provide you with either of the three forms, or a lender may use its own lender equivalent form.

Please check with your lender whether it is taking applications. Some are taking applications in batches, some by invitation only, and some lenders are not allowing forgiveness applications until the covered period ends.

The lender has 60 days to review a borrower’s documentation before submitting it to the SBA for approval. The SBA then has 90 days to review the submission and issue a decision.

SBA Review

SBA’s review will include, but is not limited to, eligibility, need, calculation of the loan amount, use of loan proceeds, and the calculation of the loan forgiveness amount. The SBA has stated that it will automatically review PPP loans over $2 million, and may reassess its forgiveness of any PPP loan within the next 5 years.

SBA Questionnaires

Those with PPP loans exceeding $2 million, should be aware that the SBA is asking some borrowers to complete PPP Loan Necessity Questionnaires; see Form 3509 for for-profit borrowers and Form 3510 for non-profit borrowers. The forms are divided into (i) business activity assessment (for profit) or non-profit activity assessment, and (ii) liquidity assessment. These forms will be administered through PPP lenders and are focused on the borrower’s good-faith certification regarding the borrower’s economic need for PPP funding.

For more information on PPP Loan forgiveness, see SBA’s Paycheck Protection Program Frequently Asked Questions (FAQs) on PPP Loan Forgiveness, and see SBA PPP Loan Forgiveness Factsheet.


[1] See previous articles New Law – Risks, Opportunities and Major Changes to the Paycheck Protection Program and New Changes Call For New Clarifications – SBA & Treasury Issue Guidance on PPP for more information.

[2] The Flexibility Act extended the covered period from 8 weeks to the earlier of (i) December 31, 2020, or (ii) 24 weeks from the date of the loan. If you received your PPP loan before June 5, 2020, the Flexibility Act allows the borrower to elect to use an 8 week covered period.

[3] The 3508EZ and the 3508S are shortened versions of the application for borrowers who meet specific requirements.