Neal Doherty: A Lender’s Guide to PPP Loan Forgiveness Timeline

Neal Doherty is Senior Regulatory Consultant with Wolters Kluwer, Minneapolis. He is an attorney and compliance professional with 20 years of experience in the financial services sector. He advises clients on building effective compliance management systems and risk assessment processes for managing and mitigating compliance, fair lending and UDAAP risks. He can be reached at

Neal Doherty


In response to the impact of the COVID-19 pandemic, the CARES Act (“Act”; Pub. L. No. 116-136) was enacted on March 27. A key provision of the law is the Paycheck Protection Program (PPP), which authorizes small businesses to apply for loans guaranteed by the Small Business Administration.  PPP loans can be forgiven, either in whole or part, under certain conditions. 

This article is intended as an overview of key steps in submitting and obtaining PPP loan forgiveness. It is based on guidance from the SBA, current as of the date of publication, and is merely a general overview. Lenders should always consult with their own legal advisor and check for new or updated guidance.


Section 1106 of the Act sets forth the statutory rules relating to PPP loan forgiveness. The SBA has also released guidance for implementing the PPP (collectively, “SBA PPP Interim Final Rules”) as well as a series of Frequently Asked Questions with answers, which is being actively updated (“SBA PPP FAQ”). Additional guidance concerning PPP loan forgiveness is expected and new legislation may also impact current regulatory guidance. 

Computation of Amount of Forgiveness

Under current guidance, the amount of loan forgiveness depends on how and when the loan proceeds were spent. In general, to be forgiven, at least 75 percent of loan proceeds must be spent on “payroll costs” during the eight-week “covered period” following the lender’s disbursement of the loan proceeds. Any reductions in staff or payroll for certain employees will reduce the amount eligible for loan forgiveness.

After the end of the covered period, under Section 1106(e) of the Act, a borrower seeking loan forgiveness must submit to the lender who is servicing the loan an application for loan forgiveness. 

As an initial step, a borrower must calculate the amount eligible for loan forgiveness based on expenses incurred during the covered period. Eligible amounts include:

  1. Qualifying payroll costs: Borrowers should remember to exclude amounts paid to independent contractors.
  2. Sole proprietor compensation: Generally, eight weeks of 2019 federal tax return Schedule C net profits.
  3. Qualifying mortgage interest on obligations: Borrowers should remember to include qualifying non-real estate debt but exclude prepayments and principal payments; obligation must have existed prior to February 15, 2020.
  4. Qualifying rents: Obligation must have existed prior to February 15, 2020.
  5. Qualifying specific utilities: Limited to electric, gas, water, internet, and transportation; obligation must have existed prior to February 15, 2020.

After determining the amount eligible for loan forgiveness, the borrower must calculate any reductions to that amount based on cuts in staff or to wages for employees making less than $100,000 on an annualized basis. However, if borrowers reinstate employee and compensation reductions by June 30, 2020, those staff or wage reductions will not count against the amount of the loan forgiveness.

Borrowers must also remember to add any additional wages incurred during the covered period for tipped workers to make up any gap between income for those tipped employees and state minimum wage laws.

Finally, the total amount cannot exceed the principal amount of PPP loan plus accrued interest.

Application Process and Documentation Considerations

While the SBA has not yet published a standard application, the application for loan forgiveness must include documentation verifying the number of full-time equivalent employees on payroll and pay rates for the covered period and, for purposes of comparison, the corresponding period prior to the pandemic. Note the Act, in an apparent drafting error, currently compares the eight-week covered period with the previous 13-week quarterly period. If pertinent, the application must include required documentation for sole proprietors. 

Next, borrowers must include required documentation for, as described above, mortgage and other interest on business-related debt, rent and specified utilities.  

Borrowers must provide certifications that the documentation is true and correct and that the loan proceeds were used for qualifying purposes. The application must also include any other documentation required by the SBA.

The completed PPP loan forgiveness application, with required documentation and certifications, submitted to the lender starts a 60-day lender decision period.  As discussed further in the Lender Protection section below, lenders do not have specific due diligence requirements with respect to a borrower’s documentation. The lender must issue a decision on the borrower’s forgiveness request by the end of the 60-day period. 

Under 1106(c)(2) and (3), forgiven loan amounts will be processed under the same procedures as “are otherwise applicable to a loan guaranteed under section 7(a) of the Small Business Act.”  The SBA must remit to the lender an amount equal to the amount of forgiveness, plus any interest accrued through the date of payment, within 90 days.

Section 1106(c)(4) provides for an alternate framework for lender reimbursement. Under this structure, the lender may report to the SBA the expected forgiveness amount on a covered loan or on a pool of covered loans. The SBA will then purchase the expected forgiveness amount not later than 15 days from receipt of the lender’s report.

Other Application Considerations

What is unclear is what happens, if after submitting the application, the borrower realizes that a mistake occurred in calculating the amount of eligible loan forgiveness.  Similarly, there could be a recalculation of the amount eligible for forgiveness due to wages and the number of eligible employees of a small business as of June 30, 2020 pursuant to Section 1106(d)(5). The SBA has not provided guidance with respect to what borrowers can do, if anything, to obtain additional loan forgiveness or, alternatively, return a portion of loan forgiveness received in error. 

Also noteworthy is that absent special legislative relief, any decision on a PPP loan forgiveness application will implicate a lender’s obligations under the Equal Credit Opportunity Act/Regulation B, its implementing regulation, including provision of adverse actions notices, and related requirements.

Lender Safe Harbor and Limitations

The Act prohibits any loan forgiveness without documentation. Specifically, under Section 1106(f), a borrower shall not receive loan forgiveness “without submitting to the lender that is servicing the covered loan the documentation.”

Section 1106(h) provides a safe harbor to lenders if a lender has “received the documentation required under this section from an eligible recipient attesting that the eligible recipient has accurately verified the payments for payroll costs, payments on covered mortgage obligations, payments on covered lease obligations, or covered utility payments” during covered period. 

The SBA PPP Interim Final Rules also provide guidance, stating that a “lender does not need to conduct any verification if the borrower submits documentation supporting its request for loan forgiveness and attests that it has accurately verified the payments for eligible costs. The [SBA] will hold harmless any lender that relies on such borrower documents and attestation from a borrower.”

In terms of lender protection for loan forgiveness, it is unclear the extent to which lenders will rely on the safe harbor with respect to forgiveness. For example, in the future, the federal government might interpret the rules more narrowly, exposing lenders to criticism for taking advantage of the safe harbor.  Conversely, if a lender performs an independent verification, that lender may be at risk of borrower litigation. Most borrowers, and certainly their attorneys and accountants, will be aware of the safe harbor and will question any lender actions that result in less loan forgiveness than expected. 

Lenders need to be cognizant of these issues when determining the extent to which they will rely on the safe harbor. Additional clarification is needed, and hopefully will be provided in future SBA guidance. Whatever approach lenders ultimately take, it should be consistent among borrowers, documented, and defensible. 

Lenders should also be aware that the statutory provisions and guidance does not provide explicit protection to a lender from potential liabilities pursuant to other federal laws and regulations that are outside the scope of the SBA—for example, UDAAP considerations in how loans were initially marketed, or fair lending concerns in processing loan forgiveness requests.


The forgiveness of loans is a key aspect of the Paycheck Protection Program, and many small business borrowers have optimistic expectations that loans will be forgiven, allowing them to focus on revitalizing their businesses and, in turn, the broader economy.  There are specific requirements that must be met in order for a small business borrower to obtain loan forgiveness and some of them are complex.  However, lenders must understand these requirements so they can properly prepare for and comply with their obligations relating to loan forgiveness under the PPP. Borrowers who are uncertain about some of the requirements may seek assistance from their local bank, credit union or other lender for clarity. 

DISCLAIMER: The information and views set forth in this Wolters Kluwer Financial Services’ communication are general in nature and are not intended as legal or professional advice. Although based on the law and information available as of the date of publication, general assumptions have been made by Wolters Kluwer Financial Services that may not take into account potentially important considerations to specific businesses. Therefore, the views and information presented in this Wolters Kluwer Financial Services’ communication may not be appropriate for you. Readers must also independently analyze and consider the consequences of subsequent developments and/or other events. Readers must always make their own determinations in light of their specific circumstances.

(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at msorohan@mba.orgor Michael Tucker, editorial manager, at