If you were lucky enough to be allocated some of the PPP money, congratulations. If more money is made available you still may have a chance to get a PPP loan. But it will go fast. Find a link to apply for the PPP here.
If the money is spent and accounted for properly, it’s possible to get most of your loan forgiven.
The new Coronavirus Aid, Relief, and. Economic Security Act (CARES Act) and the Families First Coronavirus Response Act (FFCRA Act) initiated various loan programs, tax credit programs, and deferral programs that all intermingle with one another. If you opt for one program, it may preclude you from using another one of the programs according to the article “You need to change your thinking: Paycheck Protection Program” on Forbes.com (April 21, 2020).
Our focus in this blog is how to account for the PPP money properly.
There are two steps to the PPP:
Get the money
Spend the money — The calculations can be complex to determine if an expense is forgivable or not.
Your goal should not be to spend all of the PPP money so that everything is forgiven, writes Tom R. Hager in the Forbes.com article. You received this money to pay for expenses in the normal course of business over an eight-week period. You should spend the money as you would in the normal course of business based on your cash forecasting.
The forgivable expenses are very straight forward. If you are asking yourself “Does this expense qualify to be forgiven?” – it probably doesn’t, Hager writes.
You don’t want to spend all the loan money thinking all expenses are forgivable, only to find out that some were not. You will need to justify the expenditures you made with the PPP money for the bank or organization where you received the money from. That organization is deciding for the government what expenses qualify to be forgiven.
According to Hager, forgivable expenses are broken down into two categories:
Payroll costs
Gross pay-giving raises does not make payroll forgivable
Employer paid health, vision and dental insurance
Employer paid retirement benefits
State Unemployment-SUTA
Other Costs
Rent only-no CAM (auto leases are not considered rent)
Business loan interest
Utilities-gas, water, electric, telephone landline and internet
Spend at least 75% on payroll costs
You must spend at least 75% on payroll costs and no more than 25% on the other costs. You can spend more than 75% on payroll costs, but the calculation to determine the forgivable payroll may make some payroll costs not forgivable. Stated another way, just because you spend the money on payroll costs, that doesn’t automatically make it a forgivable expense because of the head count calculation.
It’s likely that part of the PPP money will not be forgivable. That’s OK. If you don’t use all of the money, Hager writes there are two options:
Give the remaining amount back
Turn it into a low interest loan, you might need it
Final advice
Hager concludes the article with this: Protect your business and your employees by using the money as it was intended to be spent and track these expenses carefully so that you can facilitate a fast, no-surprises accounting when the time comes.