Knowledge and Insights

PPP came through for me! Now what do I do?

Man with Route to get Out of Maze

Owners of numerous small businesses applied for potentially forgivable loans under the Paycheck Protection Program (PPP) created as part of the CARES Act, designed to incentivize employers to maintain payroll and employee headcount during the COVID-19 crisis.

If you had the good fortune of getting approved for funding at this point, brace yourself for what might be the most important eight weeks of record keeping your business has yet to endure; that’s assuming you want your PPP funding (or a qualifying portion thereof) to convert from a loan to a forgivable grant. The time expended to develop an audit trail over these next eight weeks could very well be the most valuable hours spent on your business in 2020.  To maximize your opportunity for loan forgiveness under the PPP, it’s critical that you track your eligible expenses and maintain documentation to support them so you stand ready to quickly complete your lender’s loan forgiveness application as soon as it becomes available. Being proactive provides you with the best opportunity to know what you’ll owe at the end of the eight-week period, and hopefully that amount will be $0. What’s more, the amount forgiven is 100% excluded from the borrower’s federal taxable income; however, it’s unclear whether state and local taxing authorities will be so generous.  Remaining amounts left unforgiven will have to be repaid in two years at an interest rate of 1%.

Official guidance from the Small Business Administration (SBA) with respect to how to spend PPP funds to maximize your loan forgiveness amount is lacking at this time.  However, additional rules and regulations are expected to roll out by April 26, 2020.  In the meantime, see below for a practical interpretation of the limited guidance available to-date and suggested next steps to consider once your loan is funded:

  • Develop and maintain a detailed and defensible audit trail, preferably in electronic format.
    • Consider having PPP funds deposited into a separate bank account to avoid co-mingling these funds with other business funds and only using this account to pay expenses that qualify for forgiveness (i.e., payroll costs, rent, mortgage interest and utilities).
    • Establish special purpose accounts in your chart of accounts that are specifically used to record/classify qualified expenses forgivable under the PPP.
    • Compile all supporting documentation including relevant payroll reports, mortgage statements, leases and amendments, health insurance invoices, evidence of payment related to rent and utility bills as well as any correspondence in support of these potentially forgivable disbursements.
  • Mark your calendar!
    • Once the loan is funded, the eight-week clock begins to run. Be sure to spend the PPP funds on eligible expenses within that time frame taking note of whether you’ll need to accelerate a payroll such that it falls within the required eight-week period.
  • Spend the money wisely to maximize the forgiveness amount…
    • If more than 25% of the PPP funds are spent on non-payroll costs, the maximum forgiveness amount will be impacted accordingly.
    • Be mindful not to overpay wages during this eight-week period because there is a limit on how much an employee can be paid and how much qualifies for forgiveness.
    • Use PPP funds to hire back employees and reinstate wages to pre-crisis levels to avoid potential penalties that could reduce the amount of a borrower’s loan forgiveness.
      • Borrowers who reduced their workforce after February 15, 2020 and/or reduced employee wages in response to the COVID-19 crisis could see a negative impact to their loan forgiveness amount unless such reductions are restored by June 30, 2020.

As many of you know, the PPP was initially funded on March 27, 2020 with $349 billion.  Unfortunately, on April 16, 2020, it was announced that the PPP ran out of money.

If you are a borrower who applied for a PPP loan but didn’t receive an eTran number yet, there’s still hope. You could very well be in the que and set to receive an eTran number within the next few days so contact your bank right away to inquire.

Additionally, the Treasury Secretary asked Congress to appropriate an additional $250 billion to reload the PPP and a deal is reportedly close to being reached.

If you haven’t received an eTran number from round 1 funding or you haven’t applied at all through this point, proceed as though the PPP will be reloaded this week.  After contacting your bank to confirm they are an approved SBA lender, feel free to contact Mercadien for assistance so you are well-prepared to apply as soon as more PPP funding is made available.

Your Mercadien advisor can help you prepare the required loan calculations, compile the necessary documentation, complete and submit the application and answer your questions about the PPP and other relief options available. Mercadien is also available to assist you in evaluating your budget and cash flow needs, working as an advisor and sounding board to help you manage your way through the upcoming months.  Complete the COVID-19 Assistance Request form on our website or contact Frank Pina, CPA at or 609-689-2319 to get started.

DISCLAIMER: This advisory resource is for general information purposes only. It does not constitute business or tax advice, and may not be used and relied upon as a substitute for business or tax advice regarding a specific issue or problem. Advice should be obtained from a qualified accountant, tax practitioner or attorney licensed to practice in the jurisdiction where that advice is sought.