PPP Loan Forgiveness: How to Apply and What Happens if I Don’t?

Harold Lichtenstein | September 29, 2022 | PPP | 6 Minutes to read

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More than 11.5 million Paycheck Protection Program (PPP) loans were issued during the COVID-19 pandemic as financial relief. PPP loans are forgivable if businesses used the funds for intended purposes and subsequently submitted loan forgiveness applications. To date, 10.2 million of the 11.5 million loans have been fully or partially forgiven.

But what about the remaining loans? What happens if businesses do not apply for loan forgiveness?

This article will provide PPP background, an outline of PPP forgiveness, and what happens if a business does not apply for forgiveness.

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What was the Paycheck Protection Program?

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The Paycheck Protection Program, or PPP, is a business loan program put in place during the COVID-19 pandemic to help U.S. businesses pay their employees and specific critical expenses to keep their businesses operational. The loans – totaling over $800 billion – are fully, or partially, forgivable for businesses that used the funds consistent with program guidelines.

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How does PPP forgiveness work?

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All PPP loans are eligible for full forgiveness, but the ultimate amount forgiven is determined based upon the amount spent on payroll, and possibly other eligible operational expenditures, during the Covered Period.


The PPP forgiveness timeline.

The Covered Period is an 8-24 week period when PPP funds were spent on eligible expenses. The Covered Period begins on the date loan funds were received. The length of the Covered Period is determined based on how long it took the business to spend the PPP funds on eligible expenses.

Following the Covered Period is a Payment Deferral Period of 10 months. During the Payment Deferral Period, borrowers are not required to make payment on their loans. However, by the end of the Payment Deferral Period, borrowers must have submitted their application to the SBA to avoid making payments.

For loans greater than $50,000, forgiveness could be negatively impacted by reductions in employee salaries or hourly wages, as well as reductions in headcount or number of hours worked. Keys to loan forgiveness are as follows: 


  1. Only the funds spent during the Covered Period are eligible.
  2. Payroll and payroll related costs must comprise at least 60% of the requested forgiveness amount. The balance must be spent on other specific eligible expenses.
  3. The business must apply for forgiveness before the deadline.
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PPP Loan Forgiveness Deadlines

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There are two important dates related to loan forgiveness: the payment deferral period end date and the loan maturity date.

The deferral period is the period during which payment is not yet required on your PPP loan. For borrowers that have not yet applied for loan forgiveness, the payment deferral period end date is approximately 15 ½ months after the day you received your loan funds at maximum. If you have not applied for forgiveness by your deferral period end date, you are required to begin making monthly payments of principal and interest on your PPP loan.

The deadline for submitting an application for loan forgiveness is the loan maturity date. Your specific loan maturity date can be found in your loan documents. For all loans made after June 5, 2020 the loan maturity date should be 5 years after the loan funds were received. 

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What happens if I don’t apply for PPP loan forgiveness? 

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If you do not apply for forgiveness of your PPP loan, you will be required to repay the loan amount plus interest over the term of the loan. Payments of principal and interest are required to be made at least monthly, but you may pay off the entire balance at any time.   

A PPP loan term begins on the date the loan was funded. Given that the deferral period is approximately 15 ½ months, the remaining term on a two-year loan would be approximately 8 ½ months and on a five-year loan would be approximately 44 ½ months.  

For borrowers who do not receive full forgiveness of their PPP loan and fail to make payments, the lender is required to notify the Small Business Administration (SBA) once the borrower becomes 60 days delinquent. Upon notification, the SBA will note the business’ default in their system and the loan may then be referred to the U.S. Treasury for collection. 

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How can I apply for PPP loan forgiveness if I haven’t yet? 

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If you received your PPP loan through NEWITY or one of our bank partners, you can complete a forgiveness application.

Log on via our Smart Portal and then click the Loan Forgiveness button.