What Does Exemption 4 Mean for PPP Loan Forgiveness?

If you’re wondering what the heck Exemption 4 is and how it might affect your PPP loan forgiveness, you’re not alone. We’ve got the scoop on what this exemption means and how it could impact your chances of having your loan forgiven.

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The Paycheck Protection Program (PPP) allows small businesses to receive forgivable loans if they use the loan proceeds for certain expenses, such as payroll costs, rent, and utilities.

Exemption 4 of the PPP loan forgiveness application provides an exception for businesses that cannot return to their previous level of business activity due to health and safety guidelines related to COVID-19.

To be eligible for exemption 4, a business must demonstrate that it:
-Has been forced to close due to government order;
-Has been unable to operate at the same level of business activity as before February 15, 2020 due to compliance with health and safety guidelines related to COVID-19; and
-Can provide documentation from a government entity or third party that verifies the business’s status.

If you believe your business qualifies for exemption 4, you should complete and submit the PPP Loan Forgiveness Application Exemption 4 Worksheet along with your application.

What is Exemption 4?

Exemption 4 of the Paycheck Protection Program (PPP) loan forgiveness application states that borrowers do not have to provide documentation demonstrating that they actually used their PPP loan for eligible expenses if they:

-certify that they were unable to operate at the same level of business activity as before February 15, 2020 due to compliance with requirements established or guidance issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or any other applicable government entity related to COVID-19 during the period between February 15, 2020 and the end of the covered period; and

-document their calculation of reduced business activity.

What Does Exemption 4 Mean for PPP Loan Forgiveness?

The Paycheck Protection Program (PPP) loans are designed to help small businesses keep their employees on the payroll during the COVID-19 pandemic. The PPP loan forgiveness process is complex, and there are many rules and regulations that businesses must follow in order to have their loan forgiven.

One of the key eligibility requirements for PPP loan forgiveness is that businesses must use at least 60% of their loan funds for payroll costs. However, there is an exception to this rule, known as “Exemption 4.” Exemption 4 allows businesses to use up to 40% of their PPP loan funds for other eligible expenses, such as rent, utilities, or certain mortgage interest payments.

Exemption 4 is a valuable tool for small businesses that have been impacted by the COVID-19 pandemic and need flexibility in how they use their PPP loan funds. If you think your business might qualify for Exemption 4, be sure to speak with your lender or a qualified accountant or attorney who can help you navigate the PPP forgiveness process.


At this time, it is unclear what Exemption 4 means for PPP loan forgiveness. The SBA has not released any guidance on this matter. However, we will continue to monitor the situation and update this guide as more information becomes available.

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