PPP loans do not require a license fee, but forgiveness comes with real costs that many borrowers discover too late

The Paycheck Protection Program (PPP) itself has no license cost or set up fee. The Small Business Administration (SBA) issued PPP loans at no upfront charge to the borrower. However, the word "cost" in relation to PPP usually refers to one of three things: the interest rate on unforgiven portions of the loan, the professional fees to document forgiveness, or the tax consequences of loan forgiveness. Understanding which cost matters to your situation is the difference between a manageable loan and a financial surprise.

If your PPP loan was forgiven in full, you owe nothing more to the lender. If part or all of it was not forgiven, you owe the remaining balance at the interest rate stated in your promissory note — typically between 1% and 2% annually for PPP loans issued before 2021. The real cost for most borrowers, though, comes from accountant or attorney fees to prepare the forgiveness process itself.

Key Takeaways

  • PPP loans carry no license fee or set up cost from the SBA or your lender, but unforgiven balances accrue interest at the rate in your loan documents, usually 1% to 2% per year.
  • Accountants and attorneys typically charge $500 to $3,000 to prepare a PPP forgiveness process, depending on the complexity of your business and the size of the loan.
  • If your PPP loan is forgiven, the forgiven amount is not taxable income, but you cannot deduct business expenses you paid for with forgiven funds — this creates a tax cost even though the loan itself is free.
  • Lenders are required to process forgiveness requests at no charge, but they often require you to submit the SBA Form 3508 or 3508S yourself or through a professional.
  • If the SBA audits your forgiveness claim and denies it, you owe the full loan balance plus interest and potentially penalties, so documentation of how you spent the money is the real cost of safety.

Interest rates on unforgiven PPP loan balances

Every PPP loan came with a promissory note that stated an interest rate. For loans issued in 2020 and early 2021, this rate was typically 1% per year. Some later loans carried rates as high as 2%. If you do not receive full forgiveness, you owe interest on the remaining balance from the date of disbursement until you repay it.

The interest itself is not large in dollar terms — a $50,000 unforgiven balance at 1% costs $500 per year — but it compounds if you do not pay the loan off quickly. More importantly, the loan term is usually two years, meaning you must begin repaying the principal within 24 months of receiving the funds. If forgiveness is denied or partial, your lender will contact you with a repayment schedule. The cost is the interest plus the obligation to repay on that schedule or face default.

Professional fees to prepare forgiveness documentation

The SBA does not charge a fee to process forgiveness, and your lender cannot charge you a fee either. However, preparing the forgiveness process itself — gathering payroll records, lease agreements, utility bills, and other proof of how you spent the money — often requires professional help. Accountants and bookkeepers typically charge between $500 and $3,000 to prepare a complete forgiveness process, depending on the size of the loan and the complexity of your business.

A sole proprietor with a $10,000 loan and clean payroll records might pay $300 to $600. A small business with multiple employees, contractors, and rent or mortgage payments might pay $1,500 to $3,000. Some accountants charge a flat fee; others charge hourly rates ranging from $150 to $400 per hour. If you prepared your own records and have all documents organized, you may be able to submit the process yourself at no cost, but the SBA forms require specific calculations and supporting schedules that many borrowers find difficult to complete without help.

Tax consequences of loan forgiveness

A forgiven PPP loan is not taxable income to you — the SBA and Treasury Department confirmed this in 2021. You do not report the forgiven amount as business income on your tax return. However, you also cannot deduct business expenses that you paid for with forgiven PPP funds. This creates a hidden tax cost: you get the money free, but you lose the tax deduction you would normally claim for those expenses.

For example, if you used $20,000 of PPP funds to pay employee salaries, that $20,000 is forgiven and not taxable income. But you cannot claim a deduction for those $20,000 in wages on your business tax return. If your business tax rate is 25%, this costs you $5,000 in additional taxes owed. The IRS issued guidance on this in 2021, and it applies to all PPP loans regardless of when they were issued. Your accountant should calculate this impact when you file your tax return for the year you received the loan.

What happens if the SBA denies your forgiveness claim

If the SBA audits your forgiveness process and determines that you did not spend the money according to PPP rules, your forgiveness is denied. You then owe the full loan balance plus interest and potentially a penalty. The penalty varies depending on whether the SBA determines the error was unintentional or fraudulent, but it can range from 20% to 100% of the loan amount.

The real cost of a denied claim is not just the interest — it is the obligation to repay the entire principal on an accelerated schedule. Your lender will demand repayment, and if you cannot pay, you face default, collection action, and potential legal judgment against your business. This is why documentation is the actual cost of PPP forgiveness: spending time and money now to organize receipts, timesheets, and lease agreements protects you from a much larger cost later. The SBA has audited thousands of PPP loans, and borrowers who cannot produce clear records of how they spent the money face the highest denial rates.

Comparing PPP to other small business loans

Unlike traditional SBA loans, PPP loans have no origination fee, no process fee, and no prepayment penalty. A traditional SBA 7(a) loan typically carries a 1% to 3% origination fee paid upfront, plus interest rates of 6% to 9% annually. PPP loans, by contrast, cost nothing to obtain and nothing to forgive if you meet the spending requirements. The trade-off is that PPP requires you to spend the money in a specific way within a specific timeframe, and if you do not, you owe it all back.

If you are comparing the true cost of a PPP loan to other financing options, the cost is primarily the professional fees to document forgiveness and the tax impact of losing deductions. For most small businesses, these costs are far lower than the interest and fees on a traditional loan. However, if you cannot meet the spending requirements or cannot document how you spent the money, PPP becomes the most expensive option available because you owe the full amount back with interest and penalties.

How to minimize your actual costs

The easiest way to reduce costs is to keep clear records from the moment you receive the PPP funds. Maintain separate bank accounts for PPP money if possible, keep all payroll records and receipts, and document how you spent every dollar. If you do this as you go, preparing the forgiveness process takes a few hours of your accountant's time rather than days of reconstruction.

If you cannot afford an accountant, the SBA provides free forgiveness process templates and instructions on its website. Many nonprofit organizations and Small Business Development Centers (SBDCs) offer free help preparing PPP forgiveness applications. Your local SBDC can be found through the SBA's website, and they serve all 50 states. If you received a very small loan — under $50,000 — the SBA created a simplified forgiveness form (Form 3508S) that requires less documentation and can often be completed without professional help.

Frequently Asked Questions

Do I have to pay anything to the SBA to get my PPP loan forgiven?

No. The SBA does not charge a forgiveness fee, and your lender cannot charge you one either. The only costs are professional fees if you hire an accountant or attorney to prepare the process, and the tax impact of losing deductions for expenses paid with forgiven funds.

What interest rate applies if my PPP loan is not fully forgiven?

The interest rate is stated in your promissory note, typically 1% to 2% per year for PPP loans. You owe interest only on the unforgiven balance, and you must begin repaying the principal within 24 months of receiving the loan.

Can I deduct business expenses I paid for with PPP money?

No. If you use PPP funds to pay an expense, you cannot claim a tax deduction for that expense. This applies to payroll, rent, utilities, and all other may be able to access uses. The forgiven amount is not taxable income, but the lost deduction creates a tax cost.

What happens if I cannot prove how I spent my PPP loan?

If the SBA audits your forgiveness claim and you cannot document your spending, forgiveness is denied. You then owe the full loan balance plus interest and potentially a penalty of 20% to 100% of the loan amount, depending on whether the error was unintentional or fraudulent.

Where can I get free help preparing my PPP forgiveness process?

Your local Small Business Development Center (SBDC) offers free forgiveness process help. Find yours through the SBA website. If your loan is under $50,000, you may may have access to for the simplified forgiveness form (Form 3508S), which requires less documentation and can often be completed without professional information.