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On April 24th, 2020, the Small Business Administration (SBA) announced the Paycheck Protection Program (PPP) as an effort to support small businesses during the coronavirus pandemic. This loan-grant combination can be used to cover a number of eligible business expenses such as payroll, utilities, and insurance premiums.

If you’ve been approved for the PPP and received the funds, congratulations! Now it’s time to understand what you need to do to be a compliant borrower so you can boost your chances of maximum loan forgiveness. Read on to learn about PPP borrower best practices and ensure you make the most out of this opportunity. 

What to Do with the Loan Proceeds

As you probably already know, the PPP was designed to help you cover certain expenses as a small business owner, sole proprietor, or self-employed individual. So unfortunately, you can’t do whatever you want with the money. If you’d like to make sure the funds you’ve borrowed are forgiven, you’ll need to use them toward these eligible costs. 

• Payroll expenses
• Employee salaries, commissions, and bonuses
• Paid, sick, medical, and family leave costs
• Insurance premiums
• Interest on mortgage obligations and rent
• Electricity, gas, water, internet, phone, and other utilities
• Debt interest incurred prior to the covered period

We suggest you keep your loan proceeds in a separate bank account so that you don’t commingle them with other accounts. You’ll find that a separate account makes it easier for you to record how you spend your money. 

How to Document Your Spending

The best way to increase your chances of maximum loan forgiveness is to document how you spend your funds. If you’re using your loan to help with payroll costs, our team at Cirrus Payroll can help you. We’ll provide documents that show the number of full-time equivalent (FTE) employees on your payroll as well as what you pay them. 

You may also want to show your Form 941, which is an IRS form that is used to report tax withholdings such as federal income plus Social Security and Medicare tax. Receipts, transcripts of your accounts, and other documents that demonstrate you used the funds on rent, utilities, and/or mortgage interest would also help your case.

How the PPP Loan Forgiveness Process Works

Essentially, the PPP loan forgiveness process is broken down into four steps including:

1. Use the PPP Loan Proceeds 

Once the PPP funds hit your bank account, it’s your job to use them on qualifying expenses for eight weeks. It’s important to note that you’re required to allocate 75% of your loan on payroll-related costs and you can’t use more than 25% of eligible non-payroll expenses like rent or utilities.

2. Keep a Headcount

Unfortunately, your loan forgiveness will be reduced if you decrease your FTE employee headcount. So try to keep as many employees on your payroll as possible. Also, keep track of them throughout this eight week period.

3. Monitor Salaries

In the event you reduce salaries and wages of your employees by more than 25% during the covered eight weeks, the PPP will not forgive a portion of your loan. Note that this relative to the most recently completed quarter, which should be the first quarter of 2020. In addition, it only applies to all employees who earn less than $100,000. 

4. Send Documents to Your Lender

After the eight week covered period is over, you’ll need to submit your forgiveness documents to your lender within 90 days. Your lender will then have 60 days to make a forgiveness decision. You’ll be pleased to learn that any loans forgiven under the PPP will not be considered taxable income.

5. Pay Back the Loan

Ideally, your entire loan will be forgiven. If this does not happen, however, and you owe all or a portion of it back, you’ll have two years to repay it with a 1% interest rate. During the repayment period, the loan funds will still need to be used toward qualifying costs. 

Contact Cirrus Payroll for Assistance

If you’re a PPP borrower and have further questions on the loan forgiveness process, we encourage you to contact us today. We are committed to supporting our small business customers during these unprecedented times.