PPP Loan Forgiveness Best Practices

As you might expect, we have spent the better part of this Summer and Fall assisting our client base in navigating all things Payroll Protection Program (PPP). Here’s the latest.
By Noli Snobar, Dec 23, 2020

If you’ve obtained a PPP Loan then you are likely in one of the following categories.

  • You’ve applied for and have received forgiveness.
  • You’ve applied and are awaiting a response.
  • You are waiting to apply.

As of the date of this article, the only loans we’ve seen forgiven have been for amounts less than $2 million, and we have not seen any loan forgiveness requests that have been denied..  All loans in excess of $2 million appear to be in a holding pattern, although some borrowers have been required to fill out the SBA’s Form 3509 Loan Necessity Questionnaire.

The following summarizes some of the common questions we’ve received and advice that we’ve given clients.


When should I apply?  A valid question given the ever-changing landscape surrounding the PPP forgiveness rules.  In general, if your loan is below $2 million, the only compelling argument not to apply would be to defer income recognition for financial statement purposes until your next fiscal year.  Note that once your loan has been forgiven, the loan will be reclassified into other income on your income statement.

If your loan is over $2 million, the rules seem to be a little fluid at this point; however, we still don’t see a compelling reason to delay your application for forgiveness


Which application should I complete?  There are currently three versions of the application:

  • 3508S – Only available if the principal amount of the loan was less than $50,000.
  • 3508EZ – Only available if the borrower is able to certify to certain criteria in the application.
  • 3508 – The general form required if the borrower doesn’t qualify for either of the first two above.

Is my covered period 8 weeks or 24 weeks? 
At this point, most borrowers understand that they are allowed 24 weeks for your covered period, but may apply early.  While you may have exhausted your PPP funds in a period of less than 24 weeks, we are generally advising our clients to apply with 24 weeks of payroll.  For many of our clients, utilizing 24 weeks simplifies the application process, by allowing the borrower to include only payroll costs and supporting documentation, without needing to provide lease agreements, utility invoices, and debt statements to support small dollar amounts claimed in the application. Reconcile and tie out all of the numbers on your application to the supporting documentation, and make it easy for your bank reviewer to follow the support.  This will allow for a smoother review process by the bank and the SBA.  Lastly, remember that owner compensation is limited to $20,833 if you are utilizing a 24-week period.

Click links to download templates:
PPP – Payroll Costs
PPP – Non-Payroll Costs

Which Base Period Should I use? 
 Borrowers are allowed to select from two separate base periods to utilize when computing your beginning full-time equivalents (FTE).  A borrower may use either:

  • February 15, 2019 to June 30, 2019 or
  • January 1, 2020 to February 29, 2020

**Borrowers should utilize whichever base period results in a lower FTE computation.

What do I need to know about Form 3509 Loan Necessity Questionnaire? 
The SBA is requesting all borrowers with original loan amounts in excess of $2 million to complete the questionnaire.  Once the SBA requests the questionnaire, borrowers have 10 days to complete and return the form.  We recommend completion of the questionnaire prior to being asked by the SBA so that the borrower has ample time to contemplate their answers and discuss the questions with their qualified CPA, attorney, and banker.  Remember that the questionnaire limits the qualitative information to 6,000 characters (6 separate, 1,000 character spaces) throughout the document.  We recommend using this limited space to clarify the “economic uncertainty” that made the loan request necessary, particularly if Q2 and Q3 2020 outperformed your expectations at the time you made the certification.  On December 9, 2020, the SBA issued Frequently Asked Question #53 indicating that the questionnaire will be used in tandem with the borrower’s individual circumstances at the time of the loan application.  Furthermore, the SBA has stated that after the borrower submits the questionnaire, the SBA may request additional information to complete its review in a multi-step approach.  When additional information is requested, borrowers will have an opportunity to provide a narrative response explaining the circumstances that provided the basis for their good-faith loan necessity certification.   We recommend that every borrower work with their management team and their qualified CPA, attorney, and banker to develop a memo documenting the economic uncertainty and other circumstances surrounding their need to apply for the loan.

Please note that for each question, the borrower may select that the information provided remain “Confidential” if the information is “customarily kept confidential.” This designation will be important to most borrowers because the PPP loans are subject to the Freedom of Information Act. Borrowers who designate the questionnaire responses as confidential should make sure that all supporting documentation provided is also marked as “CONFIDENTIAL.”


This article is intended for educational purposes only and is not a substitute for obtaining competent accounting, tax, legal, or financial advice from a certified public accountant, attorney, or other business advisors.  You should not act upon any of the information in this article without first seeking qualified professional guidance from your business advisors on your specific circumstances. The information presented should not be construed as advice or guidance from BFBA.