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Want to escape paying back that PPP loan? The rules change fast. But here’s how to do it.

The Small Business Administration lays out guidance for loan forgiveness. It ain't simple.

Workers at Liscio's Italian Bakery Inc. in Glassboro. The company employs 400, but some were laid off when hoagie shops were closed in the fight against the coronavirus. A PPP loan through TD Bank has enabled co-owner Charles (Chad) Vilotti to set rehiring plans.
Workers at Liscio's Italian Bakery Inc. in Glassboro. The company employs 400, but some were laid off when hoagie shops were closed in the fight against the coronavirus. A PPP loan through TD Bank has enabled co-owner Charles (Chad) Vilotti to set rehiring plans.Read moreLiscio's Italian Bakery (custom credit)

Trying to figure out how you’ll pay back your small-business loan? Or better yet, get it forgiven?

The Small Business Administration last week released a long-awaited request form for business owners who took out Paycheck Protection Program loans and want the debt forgiven.

Be aware that the rules for repayment and forgiveness have continued to shift since the launch of the PPP loans. “This has been an evolution, with interim final rules issued every other day,” said Nanette Heide, a lawyer with Duane Morris in New York.

The latest key document is called the Loan Forgiveness Application and is available on the SBA website (

Borrowers must submit the application to their bank or lender to apply for loan forgiveness. But expect more updates in the coming weeks.

“The government is flying this plane while still building it,” noted Michael Ecker, a lawyer with Eckert Seamans in Philadelphia.

He is advising clients not to rush to submit a forgiveness application.

Initially, the loan was supposed to be spent on payroll and other costs over eight weeks. But, as Ecker noted, there are efforts in Congress to extend that time period to 16 weeks, while business groups are pushing for 24 weeks.

“There seems to be some consideration in Congress to afford borrowers, especially those in the hospitality and restaurant business, more flexibility in starting the ‘spend’ period, and perhaps even lengthening the spend period from eight weeks to 12 weeks” to qualify for forgiveness, Ecker said. Stay tuned.

» READ MORE: Should insurance companies pay for coronavirus shutdown losses? Philly businesses are taking them to court.

Calculating forgiveness

As with any government program, the rules for SBA loan forgiveness are complex. The forgiveness form is one document that business owners will really have to labor over.

First, the application asks for payroll and nonpayroll costs spent over the eight-week period since you banked the PPP funds.

Then there’s the full-time equivalent employee (FTE) calculation. You as a business owner are required to bring back the same number of employees as pre-pandemic, to avoid having your loan forgiveness slashed.

Finally, you must identify who qualifies as a “full-time employee” — generally, someone working 40 hours a week. There is a grace period, called a “safe harbor,” if you don’t bring back the same number of employees in eight weeks, but aim to do so by June 30, according to Heide.

What’s eligible to be included as a forgiven cost:

  1. Payroll costs that are “incurred or paid” during the eight-week period beginning on the date of the first disbursement.

  2. Mortgage interest on property, and business rent or lease payments for real or personal property, in force before Feb. 15 of this year, and any business utility payments during the eight-week period before Feb. 15.

Eligible payroll

Now, as to the workforce.

For each employee, the total compensation eligible for forgiveness can’t exceed an annual salary of $100,000, prorated for the eight-week period. That doesn’t include health insurance, retirement contributions, and other benefits.

The 75/25 Rule

The PPP’s new Loan Forgiveness Application restates what’s been dubbed the “75/25 rule”: 75% of the loan is supposed to be used for payroll; 25% for nonpayroll costs, such as the mortgage interest, lease, and utility payments.

$2 million threshold

Only the relatively few PPP loans of more than $2 million will be subject to audits by the SBA.


The Loan Forgiveness Application requires business owners to certify that your loan wasn’t for unauthorized purposes; otherwise you’re a target for civil and criminal penalties.

A reality TV star got a $2 million PPP loan. He allegedly bought a Rolls-Royce Wraith luxury coupe, along with $85,000 worth of jewelry, and was arrested on May 13. Um, what?

Include payroll paperwork, accounting records, and show you’ve maintained those in the normal course of business.

If you’ve done all of this, congratulations — you’ve performed a small miracle.

One hitch: You can still run afoul of the government if the SBA decides your loan wasn’t kosher in the first place. The SBA can direct your bank or other lender to toss out your loan forgiveness application if the agency believes that a borrower was ineligible for the PPP loan, according to a Duane Morris alert to clients.

» READ MORE: PREIT gets $4.5M Paycheck Protection loan for small business and real-estate tax delays, as losses mount

Accountants who crunch these numbers for a living say there are still gaping holes in the forgiveness process.

“It’s clear the application form and instructions provided ... are not enough,” Erik Asgeirsson, president and CEO of, the American Institute of CPA’s business and technology arm, said in a statement.

Things are changing so fast that the AICPA is holding weekly online webinars to keep up with the entire PPP process and rules, available on its website.

And Congress may hold hearings on the SBA’s lack of transparency.

Exemptions and taxes

This past week brought yet another new exemption.

Borrowers who make a good-faith, written offer to rehire — but were declined by the workers —- can still get that payroll portion of the loan forgiven, according to Mitch Gerstein, a tax accountant with Isdaner and Co. in Bala Cynwyd.

Business owners have two years to repay the rest of the loan at 1% interest. Borrowers can defer payment for the first six months, with interest accruing during that time, said Ecker.

Now to taxes.

Whatever portion of your loan that is forgiven will not be taxed, the IRS said. However, the agency also recently ruled that you can’t deduct business expenses you paid with the forgiven loan.

The issue is a jump ball at this point, but there is hope for a solution.

Lawmakers disagree with the IRS ruling on deductions. U.S. Sens. Chuck Grassley (R., Iowa) and Ron Wyden (D., Ore.) sponsored a bill that would permit small businesses to write off those expenses. Sens. Marco Rubio (R., Fla.), Tom Carper (D., Del.), and John Cornyn (R., Texas) co-sponsored the legislation.

» ASK US: Do you have a question about the coronavirus and how it affects your health, work and life? Ask our reporters.

Money still available

Payback headaches aside, the money available under PPP is still not exhausted. In fact, Congress is looking to expand the program. So if you want assistance, apply before the June 30 deadline.

The first round of $349 billion in funding ran out April 16 after 13 days. There’s still more than $100 billion left in the second round of $320 billion, Bloomberg data showed, citing SBA numbers from May 16.

“The SBA is now allowing business owners who weren’t previously qualified to get loans,” said Gerstein.

“That’s a positive thing. So many people were scared off by the requirements, which was a shame. The application clarifies some things and raises more questions. That should be issued in the coming days and weeks.”

Lendistry will host a free information webinar will be held with SBA on Tuesday, May 26 at 2:00pm to discuss the PPP loan forgiveness.

“For business owners who felt discouraged about applying earlier in the PPP process, now is the time to act to secure funding,” said Everett Sands, Lendistry’s chief executive officer.

To register, call 215-496-8020 or visit the website: