Finances and Taxes

Your PPP Loan Calculator: How to Calculate the Loan Amount for Your PPP Application

Andi Smiles Small business financial consultant 
man sitting at laptop at wprk

It’s back! The next round of PPP loans are here and funds are available for first- and second-time borrowers. Applications for both loans are open until March 31, 2021, so don’t wait on applying. 

Figuring out the loan amount to apply for can be complicated: there are requirements that must be met and calculations that must be made. We show you how to do it below and provide a handy PPP Loan Calculator tool to help. 

What’s new with PPP loans

A lot has changed when it comes to PPP loan requirements. To get the details on eligibility, the covered period, tax-deductibility, and how to apply for forgiveness, see this comprehensive guide on PPP round 2. But, we’ll give you the quick version below: 

There are new application forms

  • First-draw PPP borrowers (those borrowing a PPP loan for the first time) should use this form
  • Second-draw PPP borrowers (those borrowing another PPP loan) should use this form.

Who qualifies for a second-draw loan?

Again, it’s best to check that comprehensive PPP guide we mentioned above, but the short version is, the following businesses are eligible:

  • Those who have under 300 full-time, part-time, or seasonal employees
  • Those who have used or allocated the full amount of the first-draw PPP loan
  • Businesses that can demonstrate they have experienced a revenue reduction of at least 25 percent

See this step-by-step guide on applying for a second-draw PPP loan and calculating the 25 percent revenue reduction.

Covered period

Previously, borrowers were required to select either an 8-week or 24-week covered period. Now, new borrowers may select any period between 8 and 24 weeks as their covered period. If you have an existing PPP loan from the first round, your covered period will stay the same. 

Tax-deductibility of PPP forgivable expenses

The new bill clarifies that expenses paid for using PPP money are tax-deductible, and the loan is not counted as income, so it will not be taxed. This applies to current and future loans.  

Loan forgiveness

Borrowers with loans less than $150,000 will have a new, one-page application for forgiveness. Borrowers will not be required to submit documentation and, instead, will be asked to certify the number of employees that were retained due to their PPP loan, the estimated amount spent on payroll costs, and the total loan value. 

Expenses eligible for forgiveness:

If you want your loan to be forgiven, this round of PPP loans (whether you’re taking a first- or a second-draw loan) still requires that you spend at least 60% of the loan on payroll costs like wages, benefits, and insurance costs. Group health, dental and vision insurance are now included in payroll costs, and life and disability insurance costs have also been added as eligible payroll expenses. 

The remaining 40% of your PPP loan can still be used to pay for mortgage interest, rent, and utilities (like electricity, gas, water, transportation, telephone, or internet access), plus new eligible expenses. See these tables for a complete view of eligible expenses for PPP forgiveness

Calculate how much you can borrow from PPP

To calculate the PPP loan amount you can borrow,
see this PPP Loan Calculator.

You’ll notice that sample amounts appear in the calculator. To edit and include amounts relevant to your business, make a copy (go to File → Make a Copy), and replace the amounts. 

Most borrowers (both first and second draw) can borrow 2.5 times your average monthly payroll costs (which include healthcare costs) for 2019 or 2020, up to $2 million. 

If your business is classified under Code 72 by the North American Industry Classification System (NAICS), then you can borrow 3.5 times your average monthly payroll up to $2 million. The types of businesses that fall under Code 72 are businesses that provide lodging and accommodations or meals, snacks, and beverages for immediate consumption. 

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

Employers with 12 months of payroll

The amount you can borrow is based on your average monthly payroll costs for 2019 or 2020. So, the first step is adding up your payroll costs for either year (you get to choose which). 

Payroll costs include:

  • Employee wages, salaries, commissions, or tips
  • Payment for vacation, parental, family, medical or sick leave
  • Group health care benefits, which include group health, dental and vision premiums, and disability and life insurance premiums
  • Retirement benefits, like employer contributions 
  • State and local taxes assessed on employee compensation 

In the PPP Loan Calculator, you’ll see line items for each of these payroll costs; simply replace the sample amounts by entering the amounts relevant to your business.

Once you know your total annual payroll costs, you’ll simply divide that number by 12 to calculate your average monthly payroll costs. Here’s an example:

DescriptionAnnual Payroll Cost
Employee wages$200,000
Group health care benefits$50,000
Retirement benefits and contributions$20,000
Total annual payroll costs$270,000
Average monthly payroll cost$22,500

Like the first-draw loan, you’ll need to exclude any employee wages over $100,000 from your monthly payroll costs. So, if you pay an employee $120,000 per year, you can only count $100,000 of their wages in your total payroll costs. Here’s how this looks:

DescriptionAnnual Payroll CostPPP Eligible Payroll Cost
Employee #1$120,000$100,000
Employee #2$50,000$50,000
Employee #3$30,000$30,000
Group health insurance$50,000$50,000
Retirement benefits and contributions$20,000$20,000
Total annual payroll costs$270,000$250,000
Average monthly payroll cost$22,500$20,833

The last step is to multiply your average monthly payroll cost by 2.5 or 3.5 (depending on your business type). 

$20,833 x 2.5 = $52,082

You can borrow up to $52,082.

Self-employed borrowers (with or without employees)

For self-employed borrowers, your average monthly payroll cost is based on the net profit reported on your Schedule C (you can find this on line 31), up to $100,000. If you have additional payroll costs (like you’re self-employed and have one employee), you’ll add your payroll costs to your net profits.

From here, the process is simple. First, divide your net profit by 12. For example, if you earned $90,000 in net profit it would be:

$90,000 / 12 = $7,500

Your average monthly payroll cost is $7,500. Now, you’ll multiply that number by 2.5 or 3.5. 

$7,500 x 2.5 = $18,750

You can borrow $18,750. 

Seasonal employers

For seasonal employers, borrowers can elect to use any 12-week period between February 15, 2019 and February 15, 2020 to calculate their average monthly payroll. 

Instead of dividing the total payroll costs by 12, you’ll divide the total by 3. 

For example, if your total payroll for the 12 week period is $60,000, it would look like this. 

$60,000 / 3 = $20,000

Your monthly average payroll is $20,000. 

Seasonal businesses still need to exclude employee wages that are more than $100,000 annualized. In other words, even if you didn’t pay your employee more than $100,000 during the 12-week period, if their seasonal wages would equal more than $100,000 over 12 months, then the amount over $100,000 is excluded. 

For example, if you paid an employee $30,000 in a 12-week period, over the course of a year that would equal $120,000. When calculating your average payroll costs, it would look like this:

Description12 week total Annual equivalentPPP Eligible Monthly WagePPP Eligible Wage for 12-week period
Employee #1$30,000$120,000$8,333$24,999
Employee #2$9,000$36,000$3,000$9,000
Employee  #3$3,000$12,000$1,000$3,000

The last step is to multiply your average monthly payroll cost by 2.5 or 3.5. 

$20,000 x 2.5 = $50,000

You can borrow $50,000. 

Businesses without 12 months of payroll costs

As long as your business was operational by February 15, 2020, you can still apply for a PPP loan without 12 months of payroll. 

To apply, you’ll calculate your total payroll costs up to February 15, 2020. Keep in mind, that businesses without 12 months of payroll still need to exclude any wages that would equal more than $100,000 annualized (see the seasonal business calculation for an example of how this works).  

Then, you’ll divide your total payroll costs by the total number of months you’ve been in business. For example, if your total payroll costs were $30,000 and you were in business for three months, it would look like this:

$30,000 / 3 = $10,000

Your average monthly payroll $10,000. From here, you’ll multiply this number by 2.5 or 3.5. 

$10,000 x 2.5 = $25,000

You can borrow $25,000.

And that’s how you calculate your maximum PPP loan. 

If you’re looking for support with calculating how much you can borrow, don’t forget to check out the PPP Loan Calculator.

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Updated: February 17, 2021

Andi Smiles
Andi Smiles Andi is a small business financial consultant and coach who teaches business owners to take control of their finances. She’s helped hundreds of self-employed folx organize and understand their business finances, while also uncovering their emotional relationship with money.

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