New Guidance on PPP Early Loan Forgiveness

  |   June 24, 2020

Paycheck Protection Program (PPP) loan recipients choosing to extend their covered period may apply early for loan forgiveness, but doing so could cost them money. In consultation with the Treasury, the U.S. Small Business Administration (SBA) addresses various issues related to the PPP in a 34-page interim final rule (IFR) issued Monday night, June 22.

According to the new IFR, if a borrower applies for loan forgiveness before the end of the covered period and has reduced any employees’ salaries or wages by more than the 25% allowed for full forgiveness, the borrower must account for the excess salary reduction for the full eight-week or 24-week covered period, whichever applies to its loan. However, employers that have not reduced salaries or wages by more than 25% and fully utilized their loan proceeds on allowable costs, will receive the benefit of not having to wait until the end of the 24 week period to apply for loan forgiveness.

With this guidance, PPP borrowers who apply early for loan forgiveness forfeit a safe-harbor provision allowing them to restore salaries or wages by December 31 and avoid reductions in the loan forgiveness they receive. For example, if a borrower has a 24-week period that ends in November but wants to apply in September, any wage reduction in excess of 25% as of September would be calculated for the entire 24-week period even if the borrower restores salaries by Dec. 31. Again, employers who have not reduced salaries or wages in excess of 25% would not be impacted by forfeiting the safe-harbor provision.

Find additional information about the new IFR, here.

The new IFR has revised previous guidance to reflect the PPP Flexibility Act of 2020, which became law on June 5 and made significant changes to the program. These changes include:

  • expanding the covered period to 24 weeks, from eight weeks,
  • lowering to 60% from 75% the proportion of PPP funding that must be used on payroll costs to qualify for full forgiveness, and
  • expanding the term for new loans to five years from two years.

Please contact REDW Principals James Ortiz or Christina Roderick to discuss any concerns you have regarding your PPP application, loan, forgiveness calculations or other PPP issues.


REDW is committed to keeping you informed at all times, but especially during a crisis of the magnitude of the COVID-19 pandemic. Stay connected with us on LinkedIn and @REDWLLC. Or check out some of our other updates here.

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