PPP Loan Forgiveness FAQ


Business owners can now apply for forgiveness directly with the Small Business Administration (SBA). This option is only available to borrowers with loans of $150,000 or less -- which is 95 percent of all loans issued in 2021.

The new forgiveness platform for loans $150,000 or less began accepting applications from borrowers on August 4th, 2021, here:

SBA Forgiveness Portal

Borrowers that need assistance or have questions should call the SBA at (877) 552-2692, Monday – Friday, 8 a.m. - 8 p.m. EST.

If your PPP amount is over $150, 000 and you received your PPP loan through a bank in the SmartBiz network, your bank will be contacting you directly about applying for Forgiveness. Otherwise, you should reach out to your lender for information about when you can apply with them.

SBA Administrator Isabel Casillas Guzman shares additional details in an SBA press release:

“These entrepreneurs are busy running their businesses and are challenged by an overly complicated forgiveness process. We need to deliver forgiveness more efficiently so they can get back to enlivening our Main Streets, sustaining our neighborhoods and fueling our nation’s economy.”

See if you pre-qualify!

If you’ve secured a first or applied for a second SBA Paycheck Protection Program (PPP) loan in 2021, it’s important to keep track of the use of proceeds so you can apply for PPP loan forgiveness.

However, that’s not the end of your required documentation if seeking loan forgiveness. There are important steps to take to make sure your PPP loan is fully – or partially – forgiven. Here’s a breakdown of the forgiveness process so you can get a clear picture of your loan forgiveness obligations and make a list of specific questions.

Is PPP loan forgiveness automatic or do I have to take action?

If you're not able to use the SBA Forgiveness Portal, applications for loan forgiveness are processed by your lender. You need to fill out a PPP loan forgiveness application form and submit that to your lender. After you submit your application for forgiveness, your lender is required by law to provide you with a response within 60 days

The application for forgiveness is due within 90 days of the expiration of the eight-week post-funding period.

PPP Tax Implications

Good news for PPP borrowers: forgiven PPP loans are not taxable. Congress specified, and the IRS clarified, that forgiven PPP loans will not count as income. This applies whether the entire loan is forgiven or just a portion.

Your state may still expect you to pay income taxes on forgiven PPP loan amounts, which could be substantial depending on loan amount. Here's a list of some of the states who are currently planning to tax forgiven amounts on PPP loans:

  • California: PPP expenses may be deductible if certain income changes are met
  • Florida: Does not exclude forgiven loan amounts from taxable income
  • Hawaii: PPP expenses are not deductible
  • Minnesota: Does not exclude forgiven loan amounts from taxable income
  • Nevada: Treats PPP loan as taxable gross income
  • North Carolina: Taxpayers may not deduct expenses paid by PPP loan proceeds for NC income tax purposes
  • Texas: PPP loans are taxable for the state franchise tax
  • Utah: Does not exclude forgiven loan amounts from taxable income
  • Vermont: PPP loans forgiven in 2020 were not taxable, and business expenses paid in 2020 were deductible last year. Vermont is not excluding forgiven loan amounts for tax purposes in 2021.

Required forms to apply for PPP forgiveness

The Small Business Administration (SBA) issued the one page form for PPP loan forgiveness and the agency also published additional updated forms, revised on January 19th, 2021.

Other forms to complete include:

  • Form 3508S: A one-page forgiveness form for PPP loans of up to $150,000 along with instructions.
  • Form 3508-EZ: A simpler application form for forgiveness for borrowers who meet specific safe harbor conditions.
  • Form 3508: The complete application for forgiveness of PPP loan for those who don’t qualify for using either of the other forms above.

Who is eligible for PPP loan forgiveness?

If you received an SBA PPP loan during the two rounds of funding, you are eligible if certain criteria is met.

What is the process for PPP loan forgiveness?

Your lender will provide a form for loan forgiveness documentation, calculations and certifications for accuracy. Forgiveness calculation is based on the eight (8) week period from date of final loan disbursement (not the approval date).

Does SmartBiz check credit for PPP?

The PPP program has no credit score requirement, so SmartBiz does not use it in the PPP loan application.


Loan forgiveness details

Employers can apply for full or partial forgiveness if they spend their loans on qualifying expenses over the eight weeks after receiving a loan. Qualifying expenses include:

  • Payroll costs (Business owners must spend at least 75% of their loans on payroll costs)
  • Utilities
  • Mortgage interest (not including principal payments)
  • Rent

New approved use of proceeds have been added for the 2021 2nd round and include:

  • Software or cloud computing costs for business operations
  • Costs related to property damage and vandalism or looting due to public disturbances not covered by insurance or other compensation
  • Costs of the supply of goods that are essential to business operations
  • Covered worker protection expenditures that help adapt business activities to COVID safety requirements

What documentation should I gather?

On January 19th, 2021, the SBA released this document:  2nd PPP Loans: How to Calculate Revenue Reduction and Maximum Loan Amounts Including What Documentation to Provide.

Important information on the following details are provided in these guidelines including the documentation needed to provide to corroborate that a business sustained at least a 25 percent reduction in gross receipts:

  • Quarterly financial statements. If the financial statements are not audited, the Applicant must sign and date the first page of the financial statement and initial all other pages, attesting to their accuracy. If the financial statements do not specifically identify the line item(s) that constitute gross receipts, the Applicant must annotate which line item(s) constitute gross receipts.
  • Quarterly or monthly bank statements showing deposits from the relevant quarters. The Applicant must annotate, if it is not clear, which deposits listed on the bank statement constitute gross receipts (e.g., payments for purchases of goods and services) and which do not (e.g., capital infusions).
  • Annual IRS income tax filings of the entity (required if using an annual reference period). If the entity has not yet filed a tax return for 2020, the Applicant must fill out the return forms, compute the relevant gross receipts value (see Question 5), and sign and date the return, attesting that the values that enter into the gross receipts computation are the same values that will be filed on the entity’s tax return.

What reduces PPP loan forgiveness amounts?

  • Compensation for individuals earning more than $100K annually
  • Employees residing outside the United States
  • Qualified sick and family wages paid under the Families First Coronavirus Response Act (FFCRA) where the business may claim a credit
  • There is an additional reduction calculation if you bring back workers but reduce their pay from the pre-pandemic time-period by more than 25%.

What if I’m an independent contractor or sole proprietor?

PPP forgiveness is slightly different for sole proprietors and independent contractors. The biggest difference is “owner compensation replacement” which simplifies the loan forgiveness process.

For more information, visit the Bench Blog: Loan Forgiveness for Independent Contractors or Sole Props.

What happens if I don’t get full PPP loan forgiveness?

PPP loan terms are generous and offer the lowest-cost working capital around.

If you don't get a portion of your loan forgiven, you'll be responsible for paying back the loan with a 1% interest rate. PPP loan payments are deferred. The entire loan is due in two years (if you were approved before June 5, 2020) or five years (if you were approved after June 5, 2020). In both cases, you can repay early without any prepayment penalties or fees.