What to Do if Your PPP Loan Forgiveness Application Gets Rejected


Brendan Tuytel


Reviewed by


February 17, 2021

This article is Tax Professional approved


Small businesses with Paycheck Protection Program loans are eagerly waiting for forgiveness applications to open so they can find out whether their loan will be forgiven. But you’re not guaranteed to have all or any of the loan forgiven.

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If you believe you won’t receive forgiveness on the total loan amount, here’s what you need to know.

Why you would not receive full forgiveness

The PPP has a dizzying amount of rules to follow. Get a full overview of the rules and more in our guide on PPP loan forgiveness. Here are the 3 rules that would result in a reduction of your forgiveness amount.

The 60/40 rule

At least 60% of your loan must be used for payroll costs. This will not include any payments to independent contractors. The forgivable amount scales in proportion to the amount you spend on payroll, up to the total loan amount.

The headcount requirements

You must keep the same amount of full-time equivalent employees on payroll with full-time being defined as 40 hours in a work week. They will compare the full-time equivalent employees against one of two periods: February 15 to June 30, 2019 or January 1 to February 29, 2020. You can use whichever period has a lower FTE count.

If you have reduced your FTE count from the comparison period, your forgiveness amount will be reduced proportionately. If you have rehired employees with the PPP, read our FAQ to learn how it might affect you.

There are exemptions that will protect you from forgiveness reduction. Read a CPA’s thoughts on these exemptions here.

Salary & wage requirements

For every employee, you must pay at least 75% of their annualized salary or wages over the 24 week period. If the employee’s pay over the 24 weeks is less than 75% of the pay they received during the most recent quarter in which they were employed, the eligible amount for forgiveness will be reduced by the difference between their current pay and 75% of the original pay.

Who decides your forgiveness amount

Your forgiveness application will go through two different groups: your lender and the SBA.

Your lender is responsible for the initial review. They will be the group responsible for checking your application against your supporting documentation to verify the forgiveness amount you’ve requested. You can review the documents required in our complete guide on PPP loan forgiveness. Once your application is reviewed by your lender, they will submit it to the SBA for the final approval.

The submission from your lender to the SBA will be for the amount they deem you eligible for. It’s the SBA’s duties to give this submission a seal of approval and review for any possibilities of fraud. Because of this, the amount you’re forgiven for is most likely decided by your lender.

What to do next

At this time, there is no process for contesting a forgiveness amount. If you want further information on your approval amount, it’s best to reach out to your lender. They can provide details into why the amount may be less than expected.

For the remainder of the loan, you will not have to pay any interest until ten months after the loan hit your bank account. (You can review these terms and more in our comprehensive PPP guide)

With no prepayment penalties, you will have an opportunity to pay back the balance of the loan in these ten months so you pay no interest. Otherwise, you can continue using the loan funds in your business and pay it back on the loan terms (2 or 5 year term at 1% interest). If you are going to continue using the loan funds, you will have to continue using it on the outlined expenses (rent, lease, utilities, and payroll).

Additional resources

All things Paycheck Protection Program

All other things COVID relief

This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein.
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