Finances and Taxes

PPP FAQs: Answers to Your Most Commonly Asked Questions About the Paycheck Protection Program

Gusto Editors  
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You’ve got questions about the PPP—and we’ve got answers. We collected your most commonly asked questions and put them here. Keep asking and we’ll add more!

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What’s changed with PPP under the new administration?

We’re so glad you asked! The Biden-Harris administration has made a key change to PPP and is working on making more.

  • Starting on Wednesday, February 22, for a 14-day period, PPP loan applications will be open exclusively to businesses and nonprofits with fewer than 20 employees. Get more information here.
  • The administration is working with lenders to address PPP processing delays. They are creating streamlined processes to resolve issues as quickly as possible while still guarding against fraud.

Congress will vote on key changes to PPP. If passed, these changes will:

  • Revise the loan calculation formula to enable more sole proprietors, independent contractors, and self-employed individuals to get PPP funding.
  • PPP eligibility will expand to allow access to small business owners with non-fraud felony convictions.
  • PPP eligibility will expand to allow access to small business owners who are behind on student debt payments.
  • PPP eligibility will expand to allow access to non-citizen small business owners who are lawful U.S. residents. (These applicants can use their Individual Taxpayer Identification Numbers (ITIN) to apply.

1. What is the Paycheck Protection Program (PPP)?

The PPP is a loan program introduced in the spring of 2020 (by the federal government) and is managed by the Small Business Administration (SBA). It provides small businesses affected by COVID-19 with forgivable loans through certain lenders, such as banks and current SBA lenders, in addition to new or nontraditional lenders approved by the Treasury Department. 

The Consolidated Appropriations Act, 2021 was signed into law on December 27th, 2020 that extended the PPP Program through March 31, 2021 with $284 billion funds allocated for the program. 

Understand everything you need to know about the PPP in this comprehensive guide for small business owners

2. Is the PPP a loan? 

Yes, this is a business loan (for certain payroll or business expenses) But here’s what’s great about this loan for small businesses: you will be able to apply for loan forgiveness for as much as 100% of eligible payroll costs and up to 40% of your loan that is spent on utilities, rent, and interest on mortgage or other debt payments. 

If your loan was disbursed after 12/27/20, or your first PPP loan has not yet been forgiven, you can also spend this 40% on covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures as specified under the Paycheck Protection Program Rules (at least 60% of your loan must be allocated towards eligible payroll costs).

Keep in mind, your company’s eligible forgiveness amount will be proportionally reduced if you’ve instituted pay cuts of over 25% of any employees Q1 2020 annualized amount and/or fail to return your FTE to that of your lookback period. 

3. What are the PPP loan terms?

The loan offers a 1% fixed interest rate and a maturity of two years if the loan was issued before June 5th, 2020, and five years if issued after. 

Payments will be deferred for 10 months after your covered period ends. However, interest will continue to accrue over this period.

4. What’s a first-draw PPP loan?

This refers to the first time a business borrows a PPP loan. 

5. What’s a second-draw PPP loan?

This refers to the second time a business borrows a PPP loan. The PPP was reinstated in January of 2021 and certain businesses are eligible for a second draw.

6. Can I pay my PPP loan back earlier than two or five years?

Yes. There are no prepayment penalties or fees.

7. How can I find a PPP lender?

Check our lender list here; we’ll continue to keep it updated.

8. What is a CDFI?

A Community Development Financial Institution (CDFI) is a financial institution dedicated to serving low-income and disadvantaged communities by committing to responsible lending practices. All CDFIs must support the CDFI fund mission to provide affordable financial services—including credit and capital—in low-income communities. 

The bill passed by Congress in December allocates funds directly to CDFIs to support PPP. Understand more about CDFIs and access a list of CDFIs across the country here

9. What is an MDI?

MDI stands for Minority Depository Institution, a bank or credit union that is owned or managed by a person of color. MDIs play a critical role in helping to resource underserved communities and in creating economic opportunity where it is needed most. Studies reveal that the social impact of MDIs is significant because they distribute more loans among POC individuals and businesses compared to other financial institutions.

Understand more about MDIs here.

10. When should I apply for the PPP? What is the application deadline?

Applications are open from January 13, 2021 through March 31, 2021. 

11. How do I apply for a second-draw PPP loan? 

Download a first-draw PPP application form here

12. How do I apply for a second-draw PPP loan? 

Applying for a second-draw loan is a little different than applying for a first-draw loan: there is a different application, different eligibility requirements, and you must demonstrate a 25% revenue reduction. 

We walk you through how to apply for a second-draw PPP loan, step-by-step, here

13. Can I submit multiple PPP loan applications?

You should consult your lender(s) before submitting multiple applications. There is no clear guidance on whether or not you’re able to apply with multiple lenders, but it’s unlikely you will be penalized for doing so. However, you will be penalized for accepting multiple PPP loans; be sure to only accept one PPP loan

You may want to join multiple waitlists. If a lender begins to process your application, go back to the other lender(s) that hasn’t yet processed your loan(s) to have them cancel your application(s).

14. What materials and documentation do I need to apply for a PPP loan? 

Requested documentation may vary from lender to lender, but see this list for details on what most lenders will require. 

The short version: 

  • Copies of business owner IDs
  • Payroll reports
  • Accounting info
  • Tax forms

15. Can I use the same documentation from my first draw PPP Loan for my second draw application?

Yes, this is one of the benefits of returning to the lender from which you received your first-draw PPP loan.

Get the support you need. Apply now for a PPP loan.

16. How long will it take until I hear back from my lender on the application? 

There have been multiple reports of lenders taking time to get back to PPP applicants; some lenders are prioritizing processing loans and forgiveness from the first round of PPP. 

As we understand more and receive more guidance, we will update here. 

17. Once my application is accepted, when will the money be available?

There is expected to be a time lapse between when a lender submits PPP application information to the SBA and when the SBA provides a loan number back to the lender to continue the process. PPP Loan approval now includes additional front-end compliance checks. We recommend awaiting further guidance from your lender. 

18. What businesses are eligible to get a first-draw PPP loan?

Get a complete understanding of PPP loan eligibility here

The short version: 

  • Your business has less than 500 full-time, part-time, or seasonal employees.
  • Your business was operational before February 15, 2020 and remains operational.

Eligible entities include:

  • Certain non-profit organizations, 
  • Housing cooperatives
  • Veterans’ organizations
  • Tribal businesses
  • Self-employed individuals
  • Sole proprietors
  • Independent contractors
  • Small agricultural co-operatives

Ineligible entities include: 

  • Entities listed in 13 C.F.R. 120.110 and subsequent regulations (except for entities from that regulation which have otherwise been made eligible by statute or guidance, and except for nonprofits and religious organization) 
  • Entities involved in political and lobbying activities, including engaging in advocacy in areas like public policy, political strategy, or otherwise describes itself as a “think tank” in any public document, 
  • Entities affiliated with entities in the People’s Republic of China or Hong Kong, entities who have a member on their board of directors that is a resident of the People’s Republic of China; 
  • Registrants under the Foreign Agents Registration Act;
  • Entities that receive a grant under the Shuttered Venue Operator Grant program.

Note that some banks and/or lenders have additional requirements. Please check with your lender to confirm whether you are eligible under their program rules.

19. What businesses are eligible to get a second-draw PPP loan?

Again, see the PPP guide for all the details, but we’ll give you the short version here:

  • Your business was operational before February 15, 2020 and remains operational.
  •  Your business employs no more than 300 employees.
  • You save used (or will use) the full amount of their first PPP.
  • You can demonstrate at least a 25% reduction in gross receipts in the first, second, or third quarter of 2020 relative to the same 2019 quarter (you will do this when you apply for forgiveness if you do receive a second draw). 

Eligible entities include:

  • Certain non-profit organizations, 
  • Housing cooperatives
  • Veterans’ organizations
  • Tribal businesses
  • Self-employed individuals
  • Sole proprietors
  • Independent contractors
  • Small agricultural co-operatives

Ineligible entities include: 

  • Entities listed in 13 C.F.R. 120.110 and subsequent regulations (except for entities from that regulation which have otherwise been made eligible by statute or guidance, and except for nonprofits and religious organization) 
  • Entities involved in political and lobbying activities, including engaging in advocacy in areas like public policy, political strategy, or otherwise describes itself as a “think tank” in any public document, 
  • Entities affiliated with entities in the People’s Republic of China or Hong Kong, entities who have a member on their board of directors that is a resident of the People’s Republic of China; 
  • Registrants under the Foreign Agents Registration Act;
  • Entities that receive a grant under the Shuttered Venue Operator Grant program.

Note that some banks and/or lenders have additional requirements. Please check with your lender to confirm whether you are eligible under their program rules.

20. I’m a sole proprietor; am I eligible for PPP?

Yes.

21. I’m self-employed; am I eligible for PPP?

Yes.

22. I’m an independent contractor; am I eligible for PPP?

Yes.

23. Can I apply for a second-draw loan if my first-draw loan has not yet been forgiven?

There’s no easy answer on this one. The guidance says, “Your first draw has to be processed.” Lenders, payroll providers (including Gusto), tax professionals have requested clarification on what this means, and we’ll keep you posted as we learn more. 

Our assumption: this means that if you have applied for forgiveness on your first loan, and your forgiveness application has been processed, then you are able to apply and receive the second draw. This is our current assumption, and should not be taken as advice. We suggest you ask your lender. 

24. If a company’s owner is located in a foreign country and is a citizen of a foreign country, but the company operates completely in the US, as a US Tax ID, and all of the employees are in the US, are they still eligible for the loan?

Yes. All US businesses, whether or not they are owned by foreign companies, should be able to access the PPP loan program as long as all other eligibility requirements are met. 

However, banks may have additional restrictions against non-U.S. beneficial owners. While the CARES Act does not require that a business be beneficially owned by a U.S. citizen, the SBA’s existing loan processing platform (E-TRAN) was coded with such a technical restriction. Our sources tell us this being updated on a daily basis based on bank feedback so it is likely that businesses with non-U.S. beneficial owners will soon be able to apply for a PPP loan. Check back here for more details. 

25. How do I demonstrate a 25 percent revenue reduction? 

We’re so glad you asked! We walk you through calculating and showing your 25 percent revenue reduction here.

26. I am trying to demonstrate a 25% reduction in gross receipts, does my first-draw PPP loan or EIDL count as profit in this scenario?

Nope. The amount of any forgiven First Draw PPP Loan or any EIDL advance,

which are not subject to federal income tax, is not included in the calculation of gross

receipts.

27. I have not completed my 2020 filings, but I am trying to apply for a second draw, what should I do?

No worries! You will not be asked to demonstrate a 25% reduction in gross receipts until you apply for forgiveness for your second draw.

28. How much of a loan can I get if this is my first time receiving a PPP loan?

The max amount a first-draw borrower can receive is the lesser of:

  • 2.5 times the average monthly payroll costs and healthcare costs
  • Max loan amount of $10 million

(There may be exceptions to these limits for restaurants and other hospitality businesses. Borrowers should consult their lender/CPA to see if they are apart of this exception)

Try this PPP loan calculator tool to calculate your max loan amount. 

29. How much of a loan can I get if this is my second PPP loan?

The max amount a second-draw borrower can receive is the lesser of:

  • 2.5 times the average monthly payroll costs and healthcare costs 
  • 3.5 times the average monthly payroll costs and healthcare costs in the year prior to when the loan was received or within the calendar year for any business that is classified under Code 72 by the North American Industry Classification System (NAICS) (aka Accommodation and Food Services) 
  • Max loan amount of $2 million

We said it before and we’ll say it again: use this PPP loan calculator tool to find out how big your loan can be. 

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30. When it comes to making my PPP loan calculation, what costs have been included as eligible for payroll costs for PPP?

  • Salary, wages, commissions, tips, and bonuses.
  • Owner’s draw compensation for sole proprietors.
  • Severance pay.
  • Paid leave payments (excluding FFCRA paid leave).
  • Employee payments for state and local taxes.
  • Employee contributions to Retirement and Group Health Benefits
  • For PPP Round 2 loans and for those borrowers of PPP Round 1 whose loans have not been forgiven: Group Term Life Plans (as long as there are no ancillary benefits for medical care present).
  • For PPP Round 2 loans and for those borrowers of PPP Round 1 whose loans have not been forgiven: Long-Term Disability and Short-Term Disability Plans (as long as there are no ancillary benefits for medical care present).
  • Employee payments for federal taxes, including FIT and FICA (Social Security & Medicare). 
  • Employer payments for state and local taxes.
  • Employer contributions to Retirement and Group Insurance Benefits (life, disability, vision, or dental insurance if applicable)

31. When it comes to making my PPP loan calculation, what costs are not included as eligible for payroll costs for PPP?

  • Contractor Pay
  • Payroll Reimbursements 
  • Owner’s draw compensation (except for sole proprietors) 
  • Workers’ Compensation fees
  • Fringe benefits (e.g., Commuter Benefits, HSAs, QSEHRA)
  • FFCRA

31. Are payroll costs to part-time employees included in the loan calculation?

Yes. Payroll costs for part-time employees qualify for both loan amount eligibility and loan forgiveness. 

32. Are payments to independent contractors included as a factor in calculating my loan amount? 

Nope. Employers can’t include independent contractors or business contractors. Since independent contractors have the ability to apply for a PPP loan on their own, they can’t be counted for purposes of a borrower’s PPP loan calculation. 

33. Are owner’s draws included as part of the loan calculation?

Only if you are a sole proprietor. To align with current U.S. Treasury guidance Gusto’s PPP report removes the owner’s draw as compensation from Gross Payroll for any entity other than sole proprietorships. 

34. Are worker’s compensation insurance premiums and/or paid-family leave insurance premiums included in the loam calculation?

No, they are not included in payroll costs for PPP reporting and are not eligible to be used for PPP monthly cost estimations.

35. What can I use the loan for? What are the eligible covered expenses?

Payroll for you and your employees! Check out the table here with a complete list of eligible PPP expenses

36. Can I use the loan for expenses that I have already purchased (backdated purchases)?

Eligible purchases must be bought, paid, or incurred during the covered period in order to qualify, meaning, no, you’re not able to use your PPP funds for purchases before receiving your loan.

37. If I get a PPP loan, am I excluded from other COVID relief? 

It depends—we recommend you speak with your lender or CPA about your specific situation. 

Employers who receive Paycheck Protection Program (PPP) loans may qualify for the Employee Retention Credit (ERC)  for wages that are not paid for with forgiven PPP loan money. If you previously received a Paycheck Protection Program (PPP) loan, you may now be able to retroactively apply these credits. Also, borrowers of the PPP loan in 2020 could defer Social Security payments until their loan was forgiven.

If you’ve received an Emergency Injury and Disaster Loan (EIDL), you may also apply for a PPP loan. But you can’t use your EIDL for the same purpose as your PPP loan. 

You also cannot use your PPP loan for emergency paid sick leave or emergency FMLA leave that can be reimbursed under the Families First Coronavirus Response Act.

38. Can my business get the PPP loan and the employee retention payroll tax credit?

Maybe. Employers who receive Paycheck Protection Program (PPP) loans may qualify for the Employee Retention Credit (ERC)  for wages that are not paid for with forgiven PPP loan money. If you previously received a Paycheck Protection Program (PPP) loan, you may now be able to retroactively apply these credits. Also, borrowers of the PPP loan in 2020 could defer Social Security payments until their loan was forgiven.

39. Can my business get the PPP loan and the EIDL?

Yes. 

40. What should I do if my PPP loan application is rejected?

You have two options: either seek alternatives to the PPP or appeal the PPP decision. 

If you choose to look for alternatives to the PPP, you should know that due to the pandemic, the SBA is covering six-months worth of principal and interest payment for certain loans. Understand SBA loan alternatives to the PPP here.  

If you choose to appeal the loan rejection, you must hire an attorney as these appeals are only open to attorneys. 

41. How does PPP loan forgiveness work? 

Under the CARES Act, PPP loans are eligible for “forgiveness.” This means that the lender can release the borrower (your business) from the obligation of repaying the balance. If you meet the requirements and your loan is forgiven, you will not be required to repay any of the PPP funds that your business received.

You’ll be eligible to get up to 100% forgiveness for what you spend on payroll costs over your company’s covered period (anywhere from 8 to 24 weeks if your loan was disbursed after 12/27/20; 8 or 24 weeks if your loan was disbursed between 6/5/20-12/26/20; and 8 weeks if disbursed before 6/5/20.)

You can also expect to have 40% of your loan forgiven for payments made during the same period for payments for utilities, rent, and interest on mortgage or other debt payments. If your loan was disbursed after 12/27/20, or your first PPP loan has not yet been forgiven, you can also spend this 40% on covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures as specified under the Paycheck Protection Program Rules

However, to qualify for full forgiveness you’ll need to meet certain requirements which may require you to spend more than 60% on payroll costs.

Check this table to understand how to spend your PPP loan for full forgiveness.

Please note: If your number of full-time employees (or equivalent employees) is reduced compared to your FTE lookback period of either February 15, 2019 – June 30, 2019 or January 1, 2020 – February 19, 2020 or if you did not reduce the salaries or wages of your employees by more than 25%, then your amount eligible for forgiveness will be reduced.

42. What counts as payroll costs for forgiveness?

Check the table

43. What will reduce loan forgiveness?

Your loan forgiveness will be reduced if: 

  1. You reduce the number of full-time equivalent employees (FTEs) in comparison to a lookback period (keep them onboard if you can).
    1. Employers may choose a lookback period of 2/15/19-6/30/19 or 1/1/20-2/29/20. 
    2. Seasonal businesses can use either of these options, or choose ANY 12 weeks from 5/1/19 to 9/15/19.
    3. The number of FTEs during your custom covered period (anywhere from 8 to 24 weeks if your loan was disbursed after 12/27/20; 8 or 24 weeks if your loan was disbursed between 6/5/20-12/26/20; and 8 weeks if disbursed before 6/5/20) is divided by the FTEs during the lookback period to get a quotient. That quotient is then multiplied by the total loan amount to determine how much is still eligible for forgiveness.
  2. During your custom covered period (anywhere from 8 to 24 weeks if your loan was disbursed after 12/27/20; 8 or 24 weeks if your loan was disbursed between 6/5/20-12/26/20; and 8 weeks if disbursed before 6/5/20), you pay any employee who wasn’t considered highly compensated in 2019. This means that any employee that received, even in a single pay period, more than $100k in an annualized amount in 2019, will not be considered for reduction. They must be paid less than 75% of the average Q1 pay rate. 

The reduction is proportional to the decrease in payroll costs for those employees that didn’t get paid the requirement above.

44. What if I’ve already had to lay off employees, can I still get loan forgiveness?

If your headcount quotient is not 1, and you did reduce the salaries or wages of your employees by more than 25%, then your amount eligible for forgiveness will likely be reduced. If you re-hire them and pay them during your covered period (anywhere from 8 to 24 weeks if your loan was disbursed after 12/27/20; 8 or 24 weeks if your loan was disbursed between 6/5/20-12/26/20; and 8 weeks if disbursed before 6/5/20) following the loan, this may restore full forgiveness.

When is my deadline to apply for PPP loan forgiveness? 

What documents do I need to apply for forgiveness/where to find common documents?

45. Are employer contributions for benefits and retirement paid for an owner, forgivable?

Unfortunately, employer contributions for both retirement and health insurance towards an owner is ineligible. This means no owner benefits or retirement can be included in eligible costs for forgiveness. 

46. When is my deadline to apply for PPP loan forgiveness? 

Borrowers should have 10 months after the end of their covered period to apply for forgiveness. We do recommend you check with your lender that you did not agree to different terms. 

47. What are the different forgiveness applications?

There are four different PPP forgiveness applications (including the EZ application); check them out here

48. Am I eligible for the EZ forgiveness application? 

The EZ version of the forgiveness application only applies to borrowers who:

  • Are self-employed and have no employees; or
  • Did not reduce the salaries or wages of their employees by more than 25 percent, and did not reduce the number of hours of their employees; or
  • Experienced reductions in business activity as a result of health directives related to COVID-19, and did not reduce the salaries or wages of their employees by more than 25percent.

49. What should I do if I’m rejected for PPP loan forgiveness?

You may appeal the decision, but you must submit an appeal within 30 days of the final decision, and you must do this yourself. Unfortunately, your lender cannot submit the appeal on your behalf. 

Collect the following information and documentation in the list below and mail it to:

Associate General Counsel for Litigation
U.S. Small Business Administration
409 Third Street SW
Washington, DC 20416

Email it to: olitservice@sba.gov

  • Evidence that your appeal has been filed in time (within those 30 days)
  • A copy of the SBA loan review decision or a description of that decision
  • Your statement as to why the decision is believed to be incorrect, along with factual information and legal arguments that support your statement 
  • The forgiveness amount  being sought
  • Signed copies of payroll tax filings actually reported to IRS and State quarterly business and individual employee wage reporting and unemployment insurance tax filings actually reported to the relevant state, for the relevant periods of time (if not included in the PPP Forgiveness Application) or an explanation as to why they are not relevant or not available
  • Signed copies of applicable federal tax returns actually filed with the IRS with appropriate schedules documenting income for self-employed individuals or partners in partnership or an explanation as to why they are not relevant or not available
  • Name, address, telephone number, email address, and signature of appellant or attorney

50. Are owner-employees of S-Corp eligible for PPP loan forgiveness?

The employee cash compensation of an S-corporation owner-employee,

defined as an owner who is also an employee, is eligible for loan forgiveness up to the amount of 2.5/12 of their 2019 employee cash compensation, with cash compensation defined as it is for all other employees. 


Keep asking questions and we’ll keep adding them to our PPP FAQs!

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Updated: February 24, 2021

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