Making the Most of Your PPP Loan
Apr 10, 2020
You have applied for your Paycheck Protection Program (PPP) loan through one of the 1,800 participating SBA approved 7(a) lenders and you are awaiting the exciting news of your approval. In the meantime, have you considered how you will make the most of the funds? Here are a few recommendations as you consider how to best utilize the cash for your business.
Track Your Business Impact
For purposes of not only following the PPP loan certification guidelines but also to help you prioritize your immediate needs, we recommend keeping track of the pandemic’s impact on your business. A hard or electronic log noting the daily/weekly effects on your employees, vendors, and business cash flow will ultimately help you plan ahead and maximize your benefit. Furthermore, at the end of the eight weeks following your loan approval date, this will also help maximize your loan forgiveness.
Develop A Plan
If your operations are currently on hold or reduced, begin to outline varying scenarios of how operations may resume. To obtain full loan forgiveness, at least 75% of the proceeds will need to be used for payroll and you must have at least the same number of employees as of June 30, 2020, as you did as of February 15, 2020. Think about those employees currently on furlough, and when you will bring them back. Calculate various scenarios of operational levels, payroll amounts, and resulting loan forgiveness to guide your decision-making.
Maintain Detailed Records
The covered period of the PPP loan is eight weeks from the date you receive your proceeds. When you receive the proceeds, make note of the receipt date and determine your covered period. We also recommend that you deposit them into a separate account to allow for easier tracking of their use on eligible expenses. Additionally, if your bank activity is requested as part of the loan forgiveness considerations, you will only need to provide activity from this account rather than all operating activity.
Start a tally of your eligible expenses. As a reminder, these include payroll, benefits, retirement, rent, utilities, and mortgage interest payments. Your bank may ask you for a preliminary loan forgiveness calculation around the seven weeks into your eight-week covered period.
- For payroll, keep records of wages, healthcare costs, and retirement plan employer contributions.
- Keep separate records for rent, utilities and any mortgage interest paid
- Keep documentation of the number of employees you have as of June 30, 2020
- Pay particular attention to any payments made to employees under the Families First Coronavirus Response Act for Emergency Sick Pay or Emergency FMLA. Maintain records for any such payments, as they will reduce the PPP loan forgiveness amount to avoid “double-dipping”.
Note that PPP loan recipients cannot participate in the following CARES act benefits: Employee Retention Credit (provides for a tax credit equal to 50% of payroll taxes) or Delay of Employer Tax Payments (allows for the deferral of payment of employer payroll taxes until 50% due December 31, 2021, and 50% due December 31, 2022).