The Blog

PPP Loan – Now What?


Some of you may have received your Paycheck Protection Program Loan…so, now what?  Below we include strategy around using and tracking the funds. If you didn’t receive funds, we talk about other options you may qualify for.  If you’re short on time, this checklist is a quick guide around some actions that should be taken once the funds are received. 
 
Planning Use of Funds
Consider first the strategy around utilizing the funds within 8 weeks.  Determine total amount over the 8-week period by planning payroll, rent, business loan interest for loans secured by real estate or equipment, and utilities expense.  When thinking about payroll, who do you need to hire back?  What will your staff be doing if you aren’t open or aren’t running at full capacity?  We recommend rehiring employees based on the business need.  Making a plan around what this might look like will help you understand how much of your loan could be forgiven. Here are some things to consider as you plan:
 
Payroll
Plan out wages only (no payroll taxes, no payroll processing fees) for each pay period and total for the 8-week period

  • Remember to not include salaries in excess of $100,000, which is $4,166.67 per employee per payroll if your payroll is twice a month, and $3,846.15 per employee per payroll if your payroll is every two weeks.
  • Work through your planning and add employees as you need them, based on when you expect to be fully operational.
  • By June 30th, payroll must be restored to full headcount and wages at 75% or greater as compared to the same period in 2019, or to the period right before the epidemic.

Group Health Plans and Retirement Benefits
Plan out any employer contributions to group health plans and retirement funds for the 8-week period and combine totals with your payroll costs. 
 
Rent or Mortgage Interest
Tally total rent paid during 8-week period for leases in effect prior to February 15, 2020

  • If your business owns the building and has a mortgage instead of rent, only count your interest expense.

Utilities
Plan and tally all utilities for 8-week period

  • Utilities are described by the SBA as phone, internet, gas, water, electricity.

Apply the 75% Payroll Test
(Total Wages + Employer Paid Group Health & Retirement Benefits) / 75% = Total amount eligible for forgiveness

  • i.e. SG Practice receives a PPP loan for $100,000 and uses $60,000 on payroll wages + group health and retirement plans.  Using the equation above, $60,000 at 75% makes the maximum amount forgiven $80,000.  To keep the 75% payroll ratio, only $20,000 could be applied to other expenses and $20,000 would not be forgiven.

Click here for a spreadsheet that can help with this calculation and planning.  It looks like this:

Many questions remain unanswered with regards to forgiving the PPP loan.  We will continue to develop strategy when we have more guidance.  Here is an article we like that talks about some of these unanswered questions.  

Tracking Use of Funds
As you proceed on your 8-week period, it will be critical to track the qualified expenses so you can later substantiate your costs to your bank for forgiveness.  Each bank may have different requirements for documentation, so talk to your lender to see what they will require.  It might look something like what we’ve outlined below.
 
Open a checking account specifically for your PPP proceeds to assist in tracking the use of the funds. While this is not required, we think it will help you track the use of your funds.

  • When you receive your payroll journal as payroll is processed, calculate the amount of qualified payroll expenses (see above for what counts and what doesn’t count) and transfer that exact amount from your PPP checking account to your operating account.
  • Reimburse your operating account for rent and utilities.  Or, better yet, pay those expenses directly from your PPP checking account, if you can. 

After your first payroll run, and maybe again after each payroll run, consider running the 75% payroll test again, just so you can be certain you’re not overspending on rent or utilities.  This is especially important if you intend on the entire loan being forgiven.
 
Create a folder on your desktop, or somewhere you can easily locate.  As you reimburse your account or pay these qualified invoices, save a copy of the invoices, payroll journals, etc in the folder.  This will help you gather your documents later.   
 
If you’ve downloaded our spreadsheet, you can also use it to track actual expenses as you go.  If not, consider listing out the details of everything spent from your PPP account so you can stay organized.
 
What if you didn’t receive a PPP loan?
You’re definitely not alone if you didn’t receive a PPP loan.   Payroll Tax Credits of $5,000 per employee are available only if you didn’t receive a PPP loan for eligible employers that were

  • Operational in trade or business in the calendar year 2020 and experienced fully or partially suspended operations due to government orders

OR

  •  Saw significant decline in gross receipts for the quarter compared to the same quarter in the prior year.

These credits will be recognized as you run payroll, which will provide cash flow relief more immediately than waiting until tax time.