how to use PPP funds for loan forgiveness

7/6 UPDATE: The deadline to apply for a Paycheck Protection Program loan has been extended to August 8th.

At this time, the ABA Banking Journal reports that 7 out of 10 businesses nationally have received PPP funds. These businesses are focused on ensuring they can use their funds properly and document that use for maximum PPP loan forgiveness.

We’ve written several posts to help borrowers understand the program and how to use their funds, as well as the various changes that have unfolded over the past few months. The summary here is intended to give you one place to access all our information about the PPP. As always, please don’t hesitate to contact us with specific questions.

Updated information about how to use PPP funds

On June 15th, the President signed the Payroll Protection Program Flexibility Act (PPPFA), intended to make it easier for small businesses to receive full forgiveness of their loans.

  • Rather than a coverage period of only 8 weeks, small businesses were given 24 weeks to use the funds they received through the loan.
  • In the new Act, businesses must spend 60 percent of the loan on payroll costs in order to receive full forgiveness. The initial requirement was 75 percent.
  • Businesses now have 24 weeks, or until December 31, 2020, to bring their headcount back to the number of employees they had listed on their loan. The original deadline was the end of the 8-week coverage period.

A full list of requirement changes made in the PPPFA can be found here.

How to manage headcount requirement if employees don’t return

What if furloughed workers would not return to work? The PPPFA introduced the ability to justify the reasons that you haven’t been able to increase your headcount. If you’re worried you won’t be able to meet the full forgiveness requirement, here’s what we recommend: take immediate action by documenting an employee’s decision to not return to work. You can also look for opportunities to bring on new employees or make creative alterations that address former employees’ reasons for not returning. Don’t forget about the various changes to paid leave as well.

For further details on what to do if you’re unable to restore your employee headcount, read more here.

PPP loan forgiveness applications

With the passage of the PPPFA, the SBA released two new PPP loan forgiveness applications. One is a simplified version that can be used by loan recipients who meet certain criteria:

  • Are self-employed, independent contractors, or sole proprietors with no other employees at the time they submitted their PPP loan application, OR
  • Did not reduce the salaries or wages of their employees by more than 25% AND did not reduce their headcount or hours of their employees, OR
  • Business activity was reduced by the pandemic, but they did not reduce salaries/wages by more than 25% during the covered period (now 24 weeks from the date of receipt of funds).

EZ Loan Forgiveness Application

Full Loan Forgiveness Application (Revised Version)

For more information about the forms linked above, as well as tax considerations, click here.

Tracking PPP spending

Once you receive your loan, it’s your responsibility to keep track of how you spend every dollar. We’ve created a comprehensive list of planning and bookkeeping tips to help you prepare to apply for loan forgiveness and create the documentation you would need in the event of an audit.

Some of those tips include:

  • Understand what expenses are eligible for forgiveness. These include payroll costs, mortgage interest, rent and utilities, provided those assets and services were in place prior to February 15, 2020.
  • Make a plan for spending the forgivable amount in the 24-week covered period.
  • Set up a new account in your bookkeeping software to account for the loan money.
  • Keep related documents organized.

Read more about keeping clean books for your PPP funds.

Businesses may apply for loan forgiveness up to 10 months after the last day of the covered period. If a borrower does not receive full forgiveness, they have five years to repay the loan with an interest rate of 1%.

 Small Business Relief under the CARES Act

While the PPP has received the most attention, there are a variety of other programs available for businesses that require assistance during the pandemic. These include EIDL loans, SBA debt relief, and tax provisions. Read more.