First Look at PPP Loan Forgiveness Application Process

by | May 19, 2020

Quick Note: The webinar video, slides, and related documents referenced during the webinar (First Look at PPP Loan Forgiveness Application Process) are available in Giving365, an on-demand resource library designed for lay and staff ministry and church leaders. If you do not already have an account, you can create one today for free.


Joe Park, CEO at Horizons Stewardship, sat down with Stan Reiff, Partner and Consulting Practice Lead at CapinCrouse, the world’s largest accounting and audit firm serving exclusively churches and nonprofits, about the latest information related to the PPP loan application process.

Watch the Interview Now.

Below is a summary of the key points from the webinar interview.

The points below are covered in greater detail in Giving365 in the CapinCrouse White Paper: First Look at Applying for PPP Loan Forgiveness. 

Who will be managing the PPP loan forgiveness process?

You will be filing your application for PPP loan forgiveness through the bank that is currently servicing your loan.

Who approves PPP loan forgiveness?

While the bank will be processing the forgiveness application, the SBA will be approving applications for forgiveness.

Will I be using the SBA provided application or will my bank create a separate application based on the SBA version?  

Check with your bank to find out which application to use.  It is likely that large banks will convert the application into their own technology platform.  Most community banks are expected to use the SBA provided application.

What happens if my loan is not fully forgiven?

First, you can repay the unforgiven part in full. There is no prepayment penalty, although you will likely have to pay interest at the annualized rate of 1% on the unforgiven balance from the date the loan disbursed until the date you pay the loan back. Second, you can choose to pay the unforgiven portion back over the remaining life of the loan. There is a potential trap here. If the loan repayment schedule is computed using the original principal balance of your loan, it is likely that (after the expiration of the loan deferral period) you will have large monthly payments due relative to the unforgiven balance. This will effectively mean the loan term is much shorter than the two-year term in the loan agreement.

What are qualifying payroll costs?

As described in the First Interim Final Rule, qualifying payroll costs consist of a variety of items, including:

  • Compensation to employees (whose principal place of residence is the United States) in the form of salary, wages, commissions, or similar compensation.
  • Cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips).
  • Payment for vacation, parental, family, medical, or sick leave.
  • Allowance for separation or dismissal.
  • Payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums, and retirement.
  • Payment of state and local taxes assessed on employee compensation.
  • For an independent contractor or sole proprietor who separately applied for PPP loan, wages, commissions, income, or net earnings from self-employment or similar compensation.

Allowable payroll costs do not include:

  • Payments by an employer to independent contractors (in FAQ 15, the SBA made it clear that because independent contractors may apply for their own PPP loan, they are not includible in an employer’s PPP payroll costs for loan application purposes or for the purpose of loan forgiveness).
  • Salary and wages paid to an employee in excess of $100,000 computed on an annualized basis.
  • Wages paid to employees under the Expanded Family Medical Leave Act and Emergency Paid Sick Leave Acts (both contained within the Families First Coronavirus Response Act (FFCRA)) for which the employer receives the credits provided by the FFCRA.
Are there limits of the compensation allowed to be forgiven?

The PPP Loan Forgiveness Application instructions clarify that the exclusion of salary and wages paid in excess of $100,000 on an annualized basis means the maximum amount of salary and wages that can be included for an individual employee for the Covered Period is $15,385 ($100,000 ÷ 52 × 8 = $15,385). This limit only applies to salary and wages. It does not apply to an employee’s allocable share of group health care benefits and retirement benefits.

If the minister’s housing allowances were not calculated at the time of the initial PPP loan application, can I still include it as part of my loan forgiveness application?

Minister’s housing allowance has been deemed by the SBA both allowable and forgivable. Even if you didn’t include that as part of your calculation, you can’t add it, but it is forgivable.

Can I pay special bonuses to increase payroll expenses?

It is unlikely that expenses created solely for the purpose of loan forgiveness will meet the criteria for forgiveness.

Key Certifications.

That the dollar amount for which loan forgiveness is being requested:

  • Was used for eligible expenses
  • Takes into account applicable deductions for any decrease in full-time equivalent headcount and/or salary and wage reductions
  • Does not include nonpayroll costs in excess of 25% of the amount of loan forgiveness requested
Timing of Eligible Payroll Costs.

The instructions state that eligible payroll costs are “payroll costs paid and payroll costs incurred during the eight-week (56-day) Covered Period…”  In addition, the instructions to Line 1 of the application state that the applicant should “Enter the total eligible payroll costs incurred or paid during the Covered Period or the Alternative Payroll Covered Period.”

There are two possible ways the quoted text above can be interpreted. First, the construction of the phrase “payroll costs paid and payroll costs incurred” can be read to be disjunctive. In other words, either condition may be satisfied in determining whether a given payroll cost is eligible for forgiveness. This interpretation is bolstered by the repeated reference to “payroll costs” before the words “incurred” and “paid.” It is further bolstered by the use of the word “or” between the words “incurred” and “paid” in the instructions to line 1 of the application.

However, a second interpretation is that the use of the conjunction “and” in the phrase “payroll costs paid and payroll costs incurred” is conjunctive, meaning both conditions must be true at the same time. This interpretation is bolstered by a more nuanced reading of the instructions and highlighting these four points:

  1. The instructions not only reference the eight-week Covered Period but make a point of emphasizing that this period is 56 days in length.
  2. The instructions clarify that “Payroll costs are considered incurred on the day that the employee’s pay is earned.” This appears to be a reference to the employee having actually worked on that day.
  3. The instructions provide a workaround for payroll incurred (i.e., earned) but not paid during the 56-day Covered Period, by permitting such costs to be included so long as they are “paid on or before the next regular payroll date.”
  4. If payroll costs could be “incurred” or “paid,” then there would be no reason to create the Alternative Payroll Covered Period because the combination of including payroll paid during the Covered Period and permitting the workaround for the last payroll period that concludes after the Covered Period would resolve the dilemma created by the Covered Period failing to align with pay periods.

Reading these four points together results in an interpretation that ensures that every employer that pays employees for 56 days of payroll qualifies for 56 days of payroll costs — and no more.

If the first interpretation described above is correct, it would create the perverse result that the number of days of payroll forgiveness would vary from employer to employer based on the number of days in a given employer’s pay periods and the date on which the employer’s PPP loan funds were initially disbursed. For example, assume the following facts:

  • Employer A and Employer B each received their PPP loan funds on Monday, April 20, 2020.
  • The Covered Period for each employer, therefore, concludes on Sunday, June 14, 2020.
  • Employer A pays employees each week on Friday.
  • Employer B pays employees bi-weekly on Fridays.
  • Employer B’s next payroll date after April 20 is Friday, April 24.

If the first interpretation is correct, then both Employer A and Employer B would include their full payrolls paid on April 24, despite the fact that Employer B’s payroll covers seven more days than Employer A’s payroll.

Now fast forward to the end of the Covered Period. Because the Covered Period is an even number of weeks, the last payroll for both employers after Sunday, June 14 would occur on Friday, June 19. Each employer would only include payroll paid on that Friday that is also incurred (i.e., earned). So both employers would include the same number of days of payroll costs on this end of the Covered Period.

The end result is that if the first interpretation is correct, Employer B was able to include 65 days of payroll costs in the forgiveness amount while Employer A was able to include 58 days in the forgiveness amount. In this article, we have assumed the second interpretation was correct.

Is mortgage interest forgivable?

Mortgage interest is includible so long as the mortgage giving rise to the interest was in place on February 15, 2020. Only interest is includible, not the principal payment portion of your mortgage payment or any prepayment of principal or interest. In addition to real property mortgages, the Third Interim Final Rule makes it clear that interest on a loan secured by equipment (e.g., an automobile, office equipment, manufacturing equipment) is an eligible expense.

Is rent forgivable?

Rent is includible so long as the rental agreement was in place on February 15, 2020. This includes rent on real property and rent paid for the rental of equipment. The SBA has yet to provide clarity as to whether payments for certain services billed by a landlord along with rent (e.g., property insurance) and sales tax are includible. While the SBA has not addressed this specific question, it is our belief that rent must be paid to a third party.

Are utility expenses such as phone and internet not in the organization’s name forgivable?

Utility expenses can include electricity, gas, water, transportation, telephone (assuming it is in the organization’s name), and internet access. The utility service must have been in place on February 15, 2020. The SBA has yet to provide a definition of what is includible in transportation costs. Further, the SBA has not stated whether sewer service, trash collection, cellphone allowances for bring-your-own-device programs, or allowances for home internet service supporting work-from-home environments are allowable expenses. Payments for church parsonage utilities have not been addressed in specific SBA guidance. It would appear that a reasonable argument could be made that these utilities are either part of the cash compensation paid to a minister (in which case they would count as payroll costs in satisfying the 75% payroll cost threshold) or as the payment of utilities on church property.

When are payroll costs incurred?

Payroll costs are “incurred on the day the employee’s pay is earned.” Thus, if the Covered Period begins mid-pay period, only pay related to the days in the pay period that are also within the Covered Period are includible in payroll costs. To accommodate the fact that the Covered Period may end midway through a pay period, the instructions provide that all pay earned between the last pay period before the end of the Covered Period and the end of the Covered Period is includible in payroll costs and “eligible for forgiveness if paid on or before the next regular payroll date.”

When are payroll costs paid?

Payroll costs are considered paid on the day that paychecks are distributed, or the Borrower originates an ACH credit transaction. This means that payroll is paid on the date when it is paid to employees and not on the date that funds are remitted to a payroll processing firm.

Is there an alternative payroll covered period?

The Alternative Payroll Covered Period is only available to PPP loan forgiveness applicants that use a bi-weekly or more frequent payroll period. The Alternative Payroll Covered Period begins on the first day of the first pay period that commences after the first PPP loan disbursement. As explained in the instructions: If the Borrower received its PPP loan proceeds on Monday, April 20, and the first day of its first pay period following its PPP loan disbursement is Sunday, April 26, the first day of the Alternative Payroll Covered Period is April 26 and the last day of the Alternative Payroll Covered Period is Saturday, June 20. If the Alternative Payroll Covered Period is selected, it must be used consistently for all payroll-related calculations throughout the application. The Alternative Payroll Covered Period is only applicable to payroll costs; it is not permitted for non-payroll costs. The Alternative Payroll Covered Period will simplify some of the payroll cost-related computations, but it will not alleviate issues with payroll paid in arrears. If the Alternative Payroll Covered Period is selected, pay would have to be earned during the Alternative Payroll Covered Period to be incurred within the Alternative Payroll Covered Period.

How are Nonpayroll-Related Costs handled?

The third way in which the SBA has responded to concerns regarding the Covered Period is to permit the inclusion of nonpayroll-related costs in forgivable expenditures so long as they are “incurred during the Covered Period and paid on or before the next regular billing date, even if the billing date is after the Covered Period.” In addition, the instructions state that nonpayroll costs “paid during the Covered Period” are includible but fail to reference whether such costs must have been incurred during the Covered Period. This seems inconsistent with the statute and you should wait to see if the SBA addresses this question in further guidance.

What happens if I fail to spend 75% of the loan on payroll-related expenses?

The First Interim Final Rule requires that “[a]t least 75 percent of the expected forgiveness amount… be for payroll costs.” The PPP Loan Forgiveness Application mechanically applies this rule at Line 10 by dividing the total payroll costs reported on Line 1 by 0.75. The resulting amount is then compared to (a) the PPP loan amount and (b) the sum of payroll costs (adjusted by the salary/wage reduction amount and headcount reduction factor) and nonpayroll costs. The smallest of these three amounts then becomes the loan forgiveness amount.

The bottom line is that you need to spend at least 75% of your total PPP loan includible expenditures on payroll. It is clear from the PPP Loan Forgiveness Application that a failure to use at least 75% of your loan proceeds for payroll costs will not result in the total forfeiture of loan forgiveness. It will only reduce the amount that will be forgiven.

What is the salary and wage reduction amount?

The Salary and Wage Reduction Amount considers whether an employee’s annual salary or hourly wage during the Covered Period declined by more than 25% when compared to the period beginning on January 1, 2020, and ending on March 31, 2020 (the most recent full calendar quarter before the Covered Period). If so, there will be a reduction in loan forgiveness.

How will FTE’s impact employee count?

The Full-time Equivalent Reduction Quotient (FTERQ) is an adjustment to the loan forgiveness amount. It applies to both payroll and nonpayroll costs. The FTERQ is computed by dividing the total average FTEs during the Covered Period by the total average FTEs during a reference period.

What is the FTE Reduction Safe Harbor?

The CARES Act provides a safe harbor for employers who decreased their FTE headcount at the outset of the COVID-19 pandemic and then restored headcount by June 30, 2020.

How does the receipt of an EIDL loan, impact PPP loan forgiveness calculations?

If you did receive an EIDL loan, it will be subtracted from your forgivable amount.

Is there required documentation?

The instructions to the PPP Loan Forgiveness Application include a detailed list of supporting documentation that should be gathered in support of your application. The instructions clarify documentation that must be submitted with the loan application, along with documentation that should be maintained by the applicant but is not required to be submitted. Significantly, applicants are instructed to maintain this documentation for a period of “six years after the date the loan is forgiven or repaid in full.” In addition, the documents are to be made available upon request to an authorized SBA representative or a representative of the SBA’s Office of Inspector General.

Do affiliation rules apply to my church? 

The Religious Freedom Restoration Act, together with the Supreme Court, precedents, prevent the government from substantially burdening the exercise of religion without a compelling governmental interest. The SBA has determined that applying the SBA affiliation rules to faith-based organizations would impose a substantial burden without a compelling governmental interest.

For this reason, the affiliation rules: … do not apply to the relationship of any church, convention or association of churches, or other faith-based organization or entity to any other person, group, organization, or entity that is based on a sincere religious teaching or belief or otherwise constitutes a part of the exercise of religion. This includes any relationship to a parent or subsidiary and other applicable aspects of organizational structure or form.

What major questions remain unanswered?

The PPP Loan Forgiveness Application and instructions fail to address every question. For example, questions remain regarding:

  • Whether it is permissible to include the cost of buying back accrued vacation in forgivable payroll costs.
  • If PPP loan proceeds can be used to make special, unscheduled employer retirement plan contributions, and whether such retirement plan contributions are includible in forgivable payroll costs.
  • Whether a portion of rent paid in advance of the Covered Period for time periods contained within the Covered Period is a forgivable amount.
  • The manner in which the normal cessation of operations of preschools and schools before the conclusion of the Covered Period impacts the headcount reduction factor and salary/wage reduction amount.
  • In addition, the effect of an eight-week (56-day) covered period on includible payroll costs makes it clear that two full months of pay will not be forgiven since only pay earned during the Covered Period is forgivable.


  1. Avatar

    Where is the example document Stan referenced in the Webinar?


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