Ensuring Loan Forgiveness for PPP Loans

The SBA Payroll Protection Program (PPP) offers companies and nonprofits with fewer than 500 workers a 1% interest loan to cover 8 weeks of payroll and other expenses. The program has a $10M limit per loan. Borrowers must use the money for payroll costs, mortgage interest, rent and utilities payments over 8 weeks after being funded for the loan. Roughly 75% of that money must be used to cover payroll costs.

Businesses need to be actively aware that PPP loans are subject to audit and severe penalties if the terms and conditions of the loan forgiveness are not adhered to.

Businesses who received PPP loans can expect a new or existing federal agency going over their numbers when time comes for entities to ask for forgiveness of these loans. Businesses that do not maintain payroll and staff, or restore that payroll by June 30^th will owe that money back.  They will also need to show proof to their lender that they maintained or reinstated payrolls in order to qualify for loan forgiveness.

Here is the best advice in 5 steps for businesses on how to make sure they receive loan forgiveness:

Craft a plan: Businesses should lay out a plan for how to spend the money. One method would be to establish an 8-week calendar to help make sure a business spends all the money it can within that period.

Set up a new bank account: Segregate PPP loan proceeds into a separate bank account. Do not co-mingle PPP loan proceeds into the company’s general operating account. Doing so will create a nightmare for the business owner if the loan is audited by a federal agency.  Maintaining a separate account will make any potential audit as easy as turning over the ledger for that particular account and you will be done.

Create a spreadsheet: As an added measure, a business can create a log or spreadsheet to track each time a business spends money on PPP allowable expenses. Businesses can date what an expenditure was for, the amount and make a copy of whatever documentation validates the expense.

Every business has a general accounting system but having to dig back through that system to parse out PPP related expenses is unduly cumbersome. Maintaining a separate spreadsheet or ledger will again make things much easier.

Make copies of all-important documents: Make copies of PPP applicable checks and invoices and keep them in a “forgiveness folder.”  In doing so when the 8-week period ends the business owner will have all expense documentation ready for the lender.

Work with your payroll company: Ask the payroll company to create a special payroll run that ends with the eight weeks covered under the PPP forgiveness period. For example, instead of having a payroll period that keeps going when the eight weeks end, it can cut off the last day payroll is eligible.  It may cost the business an extra fee to do this but the time savings and ironclad documentation it produces is worth the extra cost in my opinion. An alternative is to ask the payroll company to run a specific and separate payroll report for the eligible PPP loan forgiveness period.

Following these steps will help keep a business in compliance with loan forgiveness for PPP and make any potential audit a relatively easy undertaking.

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