SBA Loan Forgiveness for PPP, EIDL and 7(a) Loans

What is SBA loan forgiveness – and which loans qualify?

SBA loan forgiveness refers to the process by which the SBA cancels all or part of a borrower’s debt obligation under a specific loan program. Only select SBA loan programs have ever included forgiveness options.

PPP loan eligibility

PPP loans are fully forgivable if businesses met employee retention requirements and used the funds for eligible expenses. Sally Graham, a former public affairs specialist with the SBA, confirmed that PPP loans are the only SBA loan eligible for forgiveness. “Current law only authorizes SBA to offer loan forgiveness on Paycheck Protection Program loans,” Graham explained. “COVID-19 EIDLs must be repaid.”

EIDL advance eligibility

Under the EIDL program, eligible businesses could receive up to $15,000 in funding from the SBA that did not need to be repaid through three separate advance programs: the original EIDL Advance (up to $10,000), the Targeted EIDL Advance (up to $10,000) and the Supplemental Targeted Advance (up to $5,000).

Loans that do not qualify

Standard EIDL loans, 7(a) loans, Express loans and 504 loans do not qualify for forgiveness and must be repaid in full according to their terms. Borrowers experiencing financial hardship may still have options, however, including hardship accommodation plans or an Offer in Compromise (OIC) — a formal process that allows eligible borrowers to settle their debt for less than the full amount owed.

Understanding PPP loan forgiveness

The Paycheck Protection Program (PPP) was an SBA loan initiative launched during the COVID-19 pandemic to help small businesses retain employees and avoid layoffs. PPP loans were disbursed through nearly 5,500 lenders across the country to help small businesses keep workers on their payroll. These loans were designed to be forgivable from the beginning, with specific requirements borrowers must meet to qualify for full forgiveness. However, the program ended on May 31, 2021.

Key forgiveness requirements

To qualify for PPP loan forgiveness, borrowers must meet several critical requirements:

• Covered period compliance: The covered period was initially eight weeks but was later extended to 24 weeks, giving borrowers more flexibility in meeting forgiveness requirements.
• 60 percent payroll requirement: At least 60 percent of the forgiven loan amount must have been spent on payroll costs.
• FTE employee retention: Borrowers must maintain their full-time equivalent (FTE) employee count during the covered period compared to pre-pandemic levels.

How PPP loans worked

PPP loans were available for up to $10 million, with eligibility based on total payroll liabilities, including wages, salaries and employee benefits. For instance, sole proprietors could receive 2.5 months’ worth of their net income, capped at an annualized $100,000 income limit. This meant that regardless of how much a business owner earned, PPP funds could only cover 2.5 months of income as if their annual salary were $100,000.

PPP loans had a low 1 percent fixed interest rate, making them effectively interest-free for many borrowers. Initially, these were two-year loans, but those approved after June 5, 2020, had a five-year repayment term.

How to apply for PPP loan forgiveness

The SBA offered multiple application forms and methods for PPP loan forgiveness, with specific deadlines borrowers were required to meet. While the PPP itself has closed, borrowers with outstanding loans may still be navigating the forgiveness process.

SBA direct forgiveness portal

The SBA direct forgiveness portal is available for borrowers whose lenders have opted in to the platform. Eligible borrowers can submit forgiveness applications directly through the SBA’s portal, and the process can take as little as 15 minutes to complete.

Critical deadlines

Understanding PPP forgiveness deadlines is essential for successful loan forgiveness:

• Five-year application window: Borrowers have up to five years from the SBA loan number issuance date to apply for forgiveness.
• 10-month payment deferral: If borrowers don’t apply within 10 months after the covered period ends, they must begin making loan payments while awaiting forgiveness approval.

Documentation you’ll need

Proper documentation is essential for PPP loan forgiveness approval. Even though the application window has closed, borrowers who received loans and are still in the forgiveness review process — or who need to respond to SBA audits — should maintain detailed records of how loan funds were used.

Payroll documentation

Payroll records are the most critical documentation for forgiveness. Required documents include:

• Payroll tax filings
• State quarterly wage reports
• Payroll processor records
• Evidence of payments for employee health insurance, retirement and state/local taxes

Non-payroll expense documentation

For rent and mortgage payments:

• Lease agreements and receipts or canceled checks for rent payments
• Lender amortization schedules and payment receipts for mortgage interest

For utility expenses:

• Utility bills and receipts
• Canceled checks or bank statements showing payments for electricity, gas, water, transportation, telephone or internet services

Employee retention records

FTE employee records help verify compliance with employee retention requirements. Borrowers should maintain documentation showing average FTE employees during the covered period compared to the reference periods:

• February 15, 2019 to June 30, 2019
• January 1, 2020 to February 29, 2020
• For seasonal employers: March 1, 2019 to June 30, 2019

EIDL forgiveness: what’s eligible?

EIDL forgiveness is limited to the advance portion of the program, while the actual loans must be repaid.

EIDLs help small businesses affected by a disaster cover overhead costs and operating expenses. The SBA created two types of EIDL programs: COVID-19 EIDLs to help businesses survive pandemic-related financial hardships, and traditional EIDLs to assist businesses recovering from natural disasters like hurricanes, wildfires or floods.

EIDL advance programs

EIDL advances were forgivable grants available through three separate programs with a combined maximum of $15,000. The SBA provided funding that did not need to be repaid through three different advance programs:

• Original EIDL Advance: Up to $10,000 (calculated at $1,000 per employee up to 10 employees)
• Targeted EIDL Advance: Up to $10,000 for businesses in low-income communities with more than 30 percent revenue reduction and 300 or fewer employees
• Supplemental Targeted Advance: Up to $5,000 for businesses with 10 or fewer employees in low-income communities with more than 50 percent revenue reduction

The combined amount from all three advance programs could not exceed $15,000. For example, if a business received the full $10,000 original EIDL advance, they could still receive up to $5,000 from the Supplemental Targeted Advance if eligible.

EIDL loan repayment requirements

Whether COVID-related or traditional, EIDL loans are not forgivable. Borrowers must repay them over 30 years, but there are no prepayment penalties for paying them off early. Graham cautioned borrowers to beware of scams promising forgiveness for SBA EIDL loans.

“Borrowers should be cautious of scams and phishing attempts that request money for SBA’s free assistance or purport to offer forgiveness for other SBA products, grants or loans,” Graham warned.

Although EIDL loans cannot be forgiven, the SBA offers hardship assistance options for borrowers struggling with repayment.

Hardship assistance options

The SBA’s Hardship Accommodation Plan (HAP) provides temporary relief for EIDL borrowers facing financial difficulties.

“[In February of 2024], the SBA expanded eligibility for the Hardship Accommodation Plan,” explained Mark Valentino, president of business banking at Citizens Bank. “This is one option for those with outstanding [EIDL] loans who are unable to meet their loan payments.”

HAP benefits include:

• Payments reduced to 10 percent of the usual amount for six months
• No requirement to catch up on missed payments first
• Plan can be renewed once after expiration
• Interest continues to accrue during the accommodation period

Valentino urged borrowers to proactively work with their lenders if they run into repayment challenges. “Work with your lender before defaulting to avoid the seizure of assets and collateral,” Valentino advised. “Seek support from your financial advisor, banking institution, and/or a lawyer with experience in this space.”

Forgiveness timelines & what happens if it’s denied

Understanding PPP forgiveness timelines and the appeals process is crucial for borrowers seeking loan forgiveness. As of 2026, the majority of PPP loans have been processed, with roughly 10.5 million PPP loans forgiven, demonstrating the program’s success in supporting small businesses through the pandemic.

Borrowers with loans above $150,000 remain subject to six years of review and audit post-forgiveness. The SBA has continued to expand its audit and compliance efforts, with particular attention on larger loans exceeding $2 million and businesses flagged for potential misuse of funds.

If forgiveness is denied, borrowers must begin repaying their PPP loans according to the original terms. Denied borrowers can appeal the decision through their lender or the SBA, depending on how the application was submitted. The appeals process requires additional documentation to support the borrower’s case for forgiveness.

SBA Offer in Compromise (OIC) basics

Other SBA loans, including 7(a), Express and 504 loans, do not offer forgiveness. However, if you’re facing financial hardship, you may be able to work out an OIC with the SBA.

Pursuing an OIC should be a last resort, as it has stringent requirements far more punitive than PPP forgiveness. To qualify, you must meet the following criteria:

• Financial hardship: You must prove you cannot repay your loan fully and can only afford to pay a portion of the debt.
• Collateral liquidation: You can only submit an OIC request after all collateral has been liquidated.
• Closed business: Your business must have ceased operations — you can no longer accept clients or produce products. However, you may collect final receivables or complete outstanding projects before submitting an OIC request, as long as the business is not actively operating.

The OIC typically applies only to the guarantor (unless a separate offer is made for the business entity). If your OIC is accepted, the legal business entity remains liable for the debt, meaning the debt is not fully forgiven. Instead, the guarantor is released from liability in exchange for a lump-sum cash payment.

PPP forgiveness vs. an OIC

Obtaining an OIC for an SBA loan is very different from pursuing PPP loan forgiveness. Here’s how:

• Extensive paperwork: Submitting an OIC requires significantly more documentation than applying for PPP loan forgiveness. You must provide a personal financial statement, tax returns, pay stubs and bank statements to prove you cannot afford to pay the debt in full.
• Review process: Unlike PPP forgiveness, which only requires submitting a short application to the lender, an OIC must first be reviewed and recommended by the original lender before being sent to the SBA. If the lender does not agree to the borrower’s proposed terms, the OIC will not be forwarded to the SBA for approval.
• Stringent criteria: Lenders treat PPP forgiveness and SBA OIC requests very differently. PPP loans are 100 percent reimbursed by the SBA, whereas SBA 7(a) loans are typically guaranteed at up to 85 percent for loans of $150,000 or less and up to 75 percent for loans above $150,000. This means the bank retains a portion of the risk on any amount forgiven through the OIC program. As a result, the bank has a financial stake in making the decision and will evaluate the loan much more critically than the PPP loan.

Comparison table: SBA loan forgiveness at a glance

Matt Sexton contributed to the reporting and writing in this article. Source interviews were conducted for a previous version of this article.