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How to Use your Paycheck Protection Program (PPP) Loan

Getting your Paycheck Protection Program loan is only the start. Now it’s time to make sure you use your funds correctly and take steps to meet the criteria for loan forgiveness. Here, we’ll cover what you need to know about your PPP loan. As always, reach out to your lender if you have any questions. We understand the importance of this loan for your business, and we’re here to help.

There are four main aspects to using your loan correctly and receiving loan forgiveness.

  1. Use funds for eligible uses only, within the eight weeks following the loan disbursement date
  2. Maintain the number of employees
  3. Maintain the amount of employee payroll
  4. Provide documentation to your lender regarding the use of funds

The loan may be fully forgiven when funds are used correctly and criteria is met. Read on for more information on each criteria.

1. Use funds for eligible purposes only

First, let’s look at how you can use your funds. Using your funds for only the eligible uses will help you take advantage of loan forgiveness. If you do not use your funds according to the requirements and within the first eight weeks, you will not be able to take advantage of the full loan forgiveness.

Eligible Payroll Costs (must account for at least 75% of total loan proceeds)

You will need to use 75% of your PPP funds for eligible payroll costs. The following are approved payroll costs:

Compensation of employees with a principal residence in the United States, up to a maximum of $100,000 on an annualized basis per employee.

  • Salary, wages, commissions and tips
  • Vacation and parental, family, medical, or sick leave (please note, excluded are qualified sick and family leave wages for which credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act.)
  • Allowance for separation or dismissal
  • Employer-funded retirement plans
  • Employer-funded health care costs, including Insurance premiums
  • State and local taxes assessed on employee compensation

Sole proprietorships and independent contractors can include wages, commissions, and income or net earnings from self-employment. This is also capped at $100,000 per employee on an annualized basis.

Other Eligible Expenses (maximum of 25% of total loan proceeds)

You may use up to 25% of your PPP funds on these additional eligible expenses.

  • Interest payments on debts incurred prior to 2/15/2020, including mortgage interest
  • Rent on leases dated prior to 2/15/2020
  • Utility payments, if service began prior to 2/15/2020
  • Repayment of an Economic Injury Disaster Loan (EIDL) that was received between January 31 and April 3, 2020

Using your funds in the correct ratio of payroll to other eligible expenses is an important part of your loan forgiveness. Also keep in mind, no other expenses are eligible for forgiveness, aside from those listed above.

2. Maintain required number of employees

PPP loans should be used to maintain or quickly rehire employees. You’ll need to keep the same head count of employees to obtain the maximum loan forgiveness.

To determine if you meet the employee count requirement for maximum forgiveness, you will need to compare your employee count from February 15, 2020 to the end of the 8th week following your loan funding. To obtain the maximum forgiveness, that number must not decline when comparing employee head count for those two dates.

At this point, we expect if your number of employees declines, the forgiveness amount would decline proportionately. A 10% decline would result in a 10% decline in loan forgiveness. We are waiting on final guidance from the government to confirm this.

3. Maintain employee payroll

In addition to maintaining employee count, Payroll Protection Program loans also have a salary level requirement for maximum loan forgiveness. Your total payroll costs cannot be reduced by more than 25%. Your loan forgiveness will be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 in 2019.

You will need to compare your payroll from February 15, 2020 to the end of the 8th week following your loan funding. To make the calculation, determine your average weekly totally payroll costs, remembering to exclude compensation paid to any employee that exceeds $100,000 annually. Then multiply by 8. Next, calculate total payroll costs for the 8 weeks following the date of funding. When comparing the two, you will want the second calculation to be 75% of the first.

Similarly to the required number of employees, we expect if you do not meet this qualification in full, your forgiveness would be adjusted proportionally. We are awaiting final guidance for clarification.

4. Provide documentation to your lender

To request loan forgiveness, you’ll need to provide documentation to your lender. Documentation should verify the number of employees and pay rates, as well as the payments on eligible mortgage, lease, and utility obligations. You can apply for the loan forgiveness at the end of the 8-week period following your funding date. Keep records during the 8-week period and then reach out to your lender.

How to repay your loan

Payments are deferred for six months. Keep in mind, interest will continue to accrue over this period. You may not have a payment due after the deferral period if you meet the full loan forgiveness requirements. PPP loans have a maturity of two years at 1% interest and there are no penalties for early payment.

We’re here to help

We want to help you obtain as much loan forgiveness as possible. At The Bank of Missouri, our relationship with you extends far beyond signing the paperwork for your loan. We’re here for you throughout the lifetime of your PPP loan. Please reach out to your lender if you have any questions about using your funds correctly or obtaining loan forgiveness. You can also see helpful program information and FAQs at the US Treasury website.


The information shared here is based upon information provided by the SBA and the US Treasury as of 4/8/2020. We are awaiting final guidance on the forgiveness calculation. Information may change based upon final guidance.

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