PPP Loan Forgiveness Calculation
On May 15, 2020, the SBA released the loan forgiveness application form, which will be used as the basis for calculating the forgiveness amount of the Paycheck Protection Program (PPP) loan. Please check out our free excel calculator based on these new forms here.
You will need to begin with collecting all the data needed to perform the calculations.
Business Mortgage Interest Payments
Business Rent or Lease Payments
Business Utility Payments
PPP Loan Amount
Payroll Data from January 2019 to the end of the 8-week coverage period.
High Level Calculation
If payroll costs are at least 75% of the total approved costs, then the entire loan is forgivable.
To be more concise the forgivable amount is calculated as the lower of:
133% of Payroll Costs
Modified FTE Total (Full Time Equivalent)
133% of Payroll
The forgivable amount is limited to 133% of payroll costs (payroll cost is 75% of the limit).
In a hypothetical scenario where the business took a 50,000 loan and payroll costs are only $20,000, assuming no change in full-time equivalent or FTE, and the rest of the loan is used for qualified expenses — the loan forgiveness would be maximized at $26,600 and the amount that would have to be repaid is $23,400.
Payroll costs are calculated by adding the gross wages (including any cash compensation, exclude any non-cash), health insurance, retirement contributions, and state and local taxes. Gross wages per employee are limited to $15,385 or the eight-week equivalent of $100,000 a year.
Owner-employee gross wages are limited to an eight-week equivalent of their applicable compensation for 2019. Any amount over the 2019 equivalent is excluded from the forgivable payroll costs.
Questions arise as we start to interpret the 8/52 2019 limit. Is there any prohibition on pay increases to the owner's actively employed spouse and relative? Will self-employed individuals also be limited to their 2019 8/52 salaries?
Modified FTE Total
FTE can be calculated by dividing the average hours worked in a week by 40 hours — at a max of 1 per person. Additionally, for the simplified method, anything less than 1 can be converted to 0.5.
For any reductions to full-time equivalent from the comparative period of Jan 1, 2020, to Mar 31, 2020, versus the eight-week covered period, the total approved costs are reduced by an FTE reduction quotient.
The FTE reduction quotient is the FTE for the eight-week covered period divided by the FTE for the comparative Jan 1 - Mar 31, 2020 period.
This calculation is not exhaustive, but it is meant to give a simple explanation of how to calculate the forgiveness amount. Not discussed in this article is the use of the Alternative Payroll Covered Period or the Safe Harbor rules.
It would be best to start testing different scenarios using the calculator to ensure that the 75% rule is met before the end of the eight-week period.
GFT's business advisors are ready to help you with loan projections and cash flow forecasting to ensure maximum forgiveness and longer-term planning. Contact a GFT advisor to help you plan for different scenarios.