How the Paycheck Protection Program Loan Calculator works
The Paycheck Protection Program (PPP) was a Small Business Administration (SBA) loan program created under the CARES Act to help businesses keep employees on payroll during the COVID-19 pandemic. This calculator applies the two standard SBA formulas that governed every PPP loan: the maximum loan amount formula, and the 60% payroll cost rule that determines how much of the loan is forgivable.
Step 1: The maximum loan amount
The SBA sized PPP loans off average monthly payroll cost:
Loan amount = Average monthly payroll cost × 2.5 (or × 3.5 for Second Draw loans to accommodation and food service businesses, NAICS code starting with 72)
The result is capped at $10,000,000 for First Draw loans and $2,000,000 for Second Draw loans. Average monthly payroll cost is generally calculated from a trailing 12 months, or calendar year 2019 or 2020, of gross wages, tips, employer-paid health insurance and retirement contributions, and state/local payroll taxes, with each employee's cash compensation capped at $100,000 annualized ($8,333.33/month).
Step 2: The 60% forgiveness rule
To have the full loan forgiven, at least 60% of the money spent during the covered period must go to payroll costs, with at most 40% going to eligible nonpayroll costs (rent, mortgage interest, utilities, and certain covered operations, supplier, or protective expenditures). The calculator applies this as:
Forgivable amount = min(loan amount, payroll spent + nonpayroll spent, payroll spent / 0.6)
The third term is what enforces the rule: if nonpayroll spending pushes payroll below 60% of the total, the forgivable amount is capped at payroll spending divided by 0.6, so forgiveness shrinks proportionally rather than being denied outright.
Worked example
With $20,000 of average monthly payroll cost, a 2.5x multiplier, and a First Draw loan, the maximum loan amount is $50,000. If $25,000 is spent on payroll and $25,000 on eligible nonpayroll costs during the covered period, payroll is only 50% of the $50,000 spent — below the 60% threshold. Forgiveness is therefore capped at $25,000 / 0.6 ≈ $41,666.67, leaving about $8,333.33 of the loan unforgiven. Had payroll spending instead been $30,000 of the same $50,000 total (60%), the full amount would qualify for forgiveness.
What happens to an unforgiven balance
Any portion that isn't forgiven converts to a term loan. PPP loans made on or after June 5, 2020 carry 1% interest and a 5-year maturity; loans made earlier carry a 2-year maturity unless extended by agreement. No collateral, personal guarantee, or prepayment penalty applies, and payments are typically deferred until the SBA sends its forgiveness decision to the lender.
Note: the SBA stopped accepting new PPP loan applications on May 31, 2021. This calculator is intended for estimating historical loan sizing or checking forgiveness math on an existing loan, not for applying for new financing. It performs computation only and is not tax, legal, or lending advice — confirm figures with your lender or the SBA before relying on them.