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Key Facts
- Federal level: PPP rules governed a temporary federal loan program that ended on May 31, 2021; they do not authorize new PPP loans today.
- Federal level: Eligibility, maximum loan amount, certifications, and permitted uses were tested at origination, while forgiveness applied a separate set of rules after funds were spent.
- Federal level: First Draw and Second Draw loans had different eligibility standards, and Second Draw generally required a prior PPP loan, no more than 300 employees, and a qualifying 25 percent gross-receipts reduction.
- Federal level: Forgiveness was limited to eligible costs and remained subject to documentation and SBA review.
- Federal level: Federal law provides a ten-year period for criminal charges or civil enforcement actions alleging PPP borrower fraud.
PPP rules were the statutes, agency regulations, forms, and guidance that controlled the Paycheck Protection Program during the COVID-19 emergency. They answered several different questions: who could borrow, how the loan amount was calculated, what certifications were required, how proceeds could be used, and what portion could later be forgiven.
The program is closed to new applications, but its rules still matter for existing loans. Forgiveness decisions, SBA reviews, lender servicing, repayment, appeals, document retention, and fraud enforcement can continue long after origination ended.
PPP eligibility was decided under time-specific rules
Congress placed PPP within the Small Business Administration’s 7(a) loan authority. Eligible recipients included specified small businesses, nonprofits, veterans organizations, tribal businesses, self-employed individuals, and independent contractors, subject to the statutes and rules in effect for the relevant draw.
A First Draw loan was the original program loan. Many applicants qualified under a 500-employee standard, an applicable SBA industry size standard, or another statutory category. Affiliation rules could require employees of related businesses to be counted together unless an exception applied.
Second Draw rules were narrower. An applicant generally had to have received a First Draw loan, used or planned to use its full amount only for authorized purposes, employ no more than 300 people, and show at least a 25 percent reduction in gross receipts between comparable quarters in 2019 and 2020.
Loan amount rules depended on payroll and business type
For many borrowers, a PPP loan was calculated from average monthly payroll costs multiplied by 2.5, subject to statutory caps and exclusions. Special calculations applied to seasonal employers, new businesses, partnerships, farmers, ranchers, and Schedule C filers.
Most Second Draw loans were capped at $2 million. Qualifying accommodation and food-services businesses could use a 3.5 multiplier instead of 2.5. The calculation still depended on documented payroll inputs and the applicable reference period.
Permitted use and forgiveness were related but distinct
PPP proceeds could pay eligible payroll costs and specified nonpayroll expenses. Over the program’s life, authorized nonpayroll categories included mortgage interest, rent, utilities, covered operations expenses, qualifying supplier costs, covered property-damage costs, and worker-protection expenditures.
Using funds for an authorized purpose did not by itself guarantee full forgiveness. Forgiveness calculations also considered the covered period, payroll-spending requirements, documentation, employee and compensation adjustments under then-applicable rules, and the accuracy of borrower certifications.
SBA currently identifies Forms 3508, 3508EZ, and 3508S. Form 3508S applies to loans of $150,000 or less and does not require supporting documents with the initial submission, although a borrower may still have to produce records during review or audit.
Applications, lender decisions, and SBA review were separate
Private participating lenders received applications and originated PPP loans backed by an SBA guaranty. Online service providers could help collect or transmit information, as described in this historical explainer about a Blue Acorn PPP application, but a service provider was not the SBA.
A lender’s approval did not prevent SBA from reviewing eligibility, the loan amount, certifications, or forgiveness. SBA’s Office of Inspector General has separately examined the agency’s eligibility and forgiveness review processes, emphasizing that origination and forgiveness were not the same determination.
What remains active after the program’s end
SBA states that PPP ended on May 31, 2021. The Direct Forgiveness Portal has been available to borrowers of any loan size since March 13, 2024, and lenders may also retain their own forgiveness process.
If forgiveness was not requested within ten months after the covered period ended, loan-payment deferral generally ended. SBA’s current page says borrowers may apply for forgiveness up to five years after the SBA loan number was issued.
Review and enforcement can outlast both deadlines. The statute provides a ten-year limitations period for criminal charges or civil enforcement actions alleging that a borrower committed fraud involving a PPP loan. An enforcement allegation is not a finding; criminal liability and civil liability depend on the applicable legal process and evidence.
