If you don't spend 60% of your PPP funds on payroll-related expenses, the amount of loan forgiveness may be reduced. This could be due to failing to maintain the workforce of full-time employees or using salaries that qualify for loan forgiveness when applying for the employee retention credit (ERC). When a lender rejects your request for forgiveness, you will have to repay any amount of the PPP loan with 1% interest over a 5-year period. However, loan payments will be deferred for six months, but they will start earning interest right away.
In addition, PPP loans have no prepayment fees or penalties. If you disagree with the decision, you can appeal it. It is important to remember that if you apply for the employee retention credit (ERC), you cannot use salaries that qualify for loan forgiveness.