PPP Forgiveness: Should You Choose the 8-Week or 24-Week Covered Period?

When the Paycheck Protection Program Flexibility Act passed in June 2020, it handed small business owners an unexpected decision: stick with the original 8-week covered period for your PPP loan forgiveness, or extend to the new 24-week window. For many borrowers, this choice felt like a welcome relief—more time, more flexibility. But the decision is not always as simple as "longer is better."

If your PPP loan was assigned before June 5, 2020, you have the option to choose between these two covered periods. Understanding the tradeoffs can mean the difference between full forgiveness and a loan balance that converts to debt you'll need to repay.

This guide breaks down everything you need to know to make the right call for your business.

What Is the Covered Period?

The covered period is the window of time during which you must spend your PPP loan funds on eligible expenses to qualify for forgiveness. Originally, under the CARES Act, this was a fixed 8-week period beginning on the date your lender disbursed the loan.

The PPP Flexibility Act changed the rules significantly:

• Borrowers with loans disbursed on or after June 5, 2020 automatically received a 24-week covered period
• Borrowers with earlier loan disbursement dates were given a choice: keep the 8-week period or opt into the 24-week window

The covered period ends when you have either used up all your loan funds on eligible expenses or the time window closes—whichever comes first.

Key Rule Changes That Affect Both Periods

Before diving into the 8-week vs. 24-week comparison, it's worth understanding the rule changes that apply regardless of which period you select.

Payroll Threshold Dropped from 75% to 60%

Under the original CARES Act, you had to spend at least 75% of your PPP loan on payroll costs to qualify for full forgiveness. The PPP Flexibility Act reduced this threshold to 60%.

This change made full forgiveness more accessible for businesses with significant non-payroll expenses like rent, utilities, or mortgage interest. The remaining 40% can now be applied to these non-payroll covered costs.

Eligible Non-Payroll Expenses

In addition to payroll, forgivable expenses include:

• Business mortgage interest (on obligations in place before February 15, 2020)
• Business rent (on leases in place before February 15, 2020)
• Business utilities (electricity, gas, water, internet, telephone)
• Covered operations expenditures (business software and cloud computing services)
• Property damage costs (damage from public disturbances not covered by insurance)
• Supplier costs (essential goods under contracts in place before February 15, 2020)
• Worker protection expenditures (personal protective equipment, facility modifications for COVID safety)

Choosing the 8-Week Covered Period

If you received your PPP loan before June 5, 2020, and your business returned to near-normal operations quickly, the 8-week option could be the better choice.

Advantages of the 8-Week Period

Faster resolution and closure. Completing your forgiveness application sooner means you can close this chapter of pandemic-era financial management. For many business owners, the mental overhead of tracking PPP compliance is a burden they want off their plate.

Simpler staffing compliance. Maintaining employee headcount and salary levels over 8 weeks is significantly easier than doing so over 24 weeks. If your workforce is stable, shorter timelines reduce the risk of accidental compliance failures.

Regulatory certainty. PPP rules evolved frequently throughout 2020. Applying under rules you already understand, rather than waiting for potential future changes, offers a degree of predictability.

Earlier owner compensation. For self-employed individuals, sole proprietors, and owner-employees, the 8-week period means your owner compensation replacement is capped at 8/52 of 2019 net profit (maximum $15,385). If you received your loan after June 5, 2020, the 24-week cap applies at 2.5 months of 2019 net profit (maximum $20,833).

When the 8-Week Period Makes Sense

Consider the 8-week period if:

• You spent your PPP funds quickly and entirely on eligible expenses within the first two months
• Your employee headcount and wages have remained stable
• You want to resolve the forgiveness process before the end of the tax year
• Your non-payroll expenses are low relative to your total loan amount

Choosing the 24-Week Covered Period

For most borrowers—especially those whose revenue took longer to recover—the 24-week period offers meaningful advantages.

Advantages of the 24-Week Period

Lower payroll requirement creates more flexibility. The combination of the 60% payroll threshold and the longer timeline gives businesses more room to achieve full forgiveness. If your payroll costs are relatively modest compared to your total loan, the extra weeks to accumulate qualifying payroll expenses can make a significant difference.

More time for strategic planning. Twenty-four weeks allows you to work closely with your accountant or financial advisor to optimize how you categorize and document expenses. For complex businesses with multiple expense categories, this planning time has real value.

Higher maximum forgiveness for owners. If your loan was disbursed after June 5, 2020, the 24-week owner compensation cap of $20,833 (2.5 months of 2019 net profit) is higher than the 8-week equivalent, potentially allowing greater forgiveness for self-employed borrowers.

Salary restoration safe harbor. If you reduced employee salaries during the crisis, you have until the end of the covered period to restore them and avoid forgiveness reductions. A 24-week window gives you more time to execute this restoration.

When the 24-Week Period Makes Sense

Consider the 24-week period if:

• Your business revenue recovery was slow and you needed more time to spend PPP funds
• Your payroll expenses are lower relative to your loan amount, and you need more time to reach the 60% threshold
• You reduced employee wages and need time to restore them before your forgiveness application
• You want maximum time to consult professionals and optimize your forgiveness calculation

The Early Application Trap: A Critical Warning

Here is where many borrowers have made costly mistakes. Applying for forgiveness before your covered period ends can create a significant problem if you reduced any employee's annual salary by more than 25%.

The salary reduction penalty is calculated over the entire selected covered period, not just the time that has actually passed when you apply.

Example: You choose the 24-week covered period and apply after 10 weeks because you've spent all your funds. But during those 10 weeks, you reduced one employee's salary by 30%. Even though you applied early, the SBA calculates the forgiveness reduction based on the full 24-week period. The penalty hits harder than if you had chosen the 8-week period and applied at week 8.

The safe harbor exception: If you restore reduced salaries by the end of the covered period (or by December 31, 2020, under the original safe harbor), you can avoid the forgiveness reduction penalty. But if you apply early and haven't yet restored wages, you lose access to this protection.

Bottom line: Do not apply for forgiveness before your covered period ends unless you are certain all salary and headcount requirements have been met in full.

Understanding FTE (Full-Time Equivalent) Requirements

Loan forgiveness can be reduced proportionally if your average full-time equivalent (FTE) employee count during the covered period is lower than your baseline period. You choose the baseline that is most favorable:

• February 15, 2019 – June 30, 2019
• January 1, 2020 – February 29, 2020

However, certain exemptions exist for FTE reductions. Forgiveness is not reduced if:

• You made a documented, good-faith offer to rehire an employee who declined
• An employee was fired for cause, voluntarily resigned, or voluntarily reduced hours
• You were unable to restore full business activity due to COVID-19 health directives (for the period February 15, 2020 through December 31, 2020)

For loans of $50,000 or less, FTE reductions and salary reductions do not affect your forgiveness amount at all—a significant simplification for micro-borrowers.

Loans Originated After June 5, 2020

If your PPP loan was disbursed on or after June 5, 2020, you do not have a choice: your covered period is 24 weeks. All the rules described above apply, including the 60% payroll threshold and the 24-week owner compensation cap.

This also means your loan repayment begins later. You have until 10 months after the end of your covered period to apply for forgiveness before your lender is required to begin collecting principal and interest payments.

How to Document Your Forgiveness Application

Regardless of which covered period you select, you will need to maintain thorough records. Even if your forgiveness form doesn't require submitting documentation at the time of application, the SBA can request records during a review or audit.

Payroll documentation to retain:

• Bank account statements or third-party payroll service provider reports
• Tax forms (941, 940, W-2, W-3) covering the loan period
• State income, payroll, and unemployment insurance filings

Non-payroll documentation to retain:

• Business mortgage statements and amortization schedules
• Lease agreements and rent receipts
• Utility invoices and account statements

You are required to retain these records for 4 years (employment-related) and 3 years (all other documentation) following the submission of your forgiveness application.

Making the Decision: A Framework

Use these questions to guide your choice:

1. Have you already spent all PPP funds? If yes and the spending happened within 8 weeks, the shorter period may resolve things faster.

2. Did you reduce any employee's salary by more than 25%? If yes and you haven't fully restored wages yet, the 24-week period gives you more runway—but be careful about applying early.

3. Are your payroll costs close to 60% of the loan amount? If you're near the threshold, you may not need extra weeks to qualify for full forgiveness.

4. Do you have complex expenses and multiple employees? The 24-week period gives you more time to organize documentation and consult with a professional.

5. Is the administrative burden weighing on you? There's genuine value in wrapping up PPP compliance. If your numbers work, the 8-week option provides peace of mind sooner.

Keep Your Financial Records Ready for Forgiveness

PPP loan forgiveness ultimately comes down to documentation. The businesses that successfully achieve full forgiveness are the ones with clean, organized records showing exactly how every dollar was spent during the covered period.

This is where solid bookkeeping practices pay dividends. Whether you're tracking payroll expenses, categorizing rent and utilities, or documenting owner compensation, having accurate financial records at the ready makes the forgiveness application process far less stressful.

Simplify Your Financial Management

Navigating PPP forgiveness is just one of many financial challenges small business owners face. Maintaining clear, organized records throughout the year—not just at forgiveness time—makes every compliance task easier.

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