Paycheck Protection Program Loan – You got it and now what?

Updated: Aug 6, 2020

1. Review the Requirements of PPP

Congratulation! You got PPP loan for your business. Before using, let’s review all the requirements to make this loan forgiven:

Payroll costs are the main cost eligible for the forgiven under the PPP which accounts for 75% of the loan amount. However, make sure you take note on which payroll costs are eligible and which are not:

Payroll Expenses that are acceptable for loan forgiveness:

  • According to the recent SBA guidance, payroll cost includes all cash compensation, including salary, wages, commissions and similar compensation, housing stipend or allowance, etc.

  • Payment for vacation, parental, family, medical or sick leave.

  • Allowance for dismissal.

  • Payments for health care benefits, including insurance premiums.

  • Payment for retirement benefits.

  • State or local payroll taxes.

Payroll Expenses that are NOT acceptable for loan forgiveness:

  • Payment to an independent contractor. Independent contractors can apply for a PPP loan themselves so that you do not need to pay them.

  • Cash compensation over $100,000. For example, your employee, Mr. A has the total payment as $125,000. The amount $25,000 out of the limitation must be paid back.

  • The employer’s share of federal payroll taxes.

  • Qualified sick leave and qualified parental leave wages for which credit is allowed under the Families First Coronavirus Response Act (FFCRA).

After spending money on payroll costs, you can take the rest to pay for other qualifying expenses. These costs are limited to 25% of the PPP loan. Please note down that non-payroll costs below are acceptable for loan forgiveness:

  • Interest expenses on a mortgage on real or personal property and was existed before February 15th, 2020.

  • Rent expenses under leasing agreement dated before February 15th, 2020

  • Utility expenses for electricity, gas, water, transportation, telephone or internet dated was before on Feb. 15, 2020

We go over the expenses that are eligible for the PPP loan forgiveness. Now, how can you track your paid amount under PPP to ensure you do not miss any payment or worse, you have paid for unacceptable costs?


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2. Set up an efficient tracking system

- Using a Simple Excel spreadsheet to track qualifying expenses. This will allow you to see your payment progress in a real-time ad where you will be at the end of the eight weeks. List all your costs and think of an eight-week budgeted cash flow forecast, you can have a whole picture. Based on the spreadsheet, you can have an idea of which documents must be collected and organized to substantiate your costs when required.

- Capture electronic transactions. PPP loan might be sent directly to your main checking business account. Therefore, you need to collect all electronic payments relating to your PPP loan and use them as appropriate documentation. Work on similar progress with your paper invoices and you could have the same level of detail.

- Consider setting up a separate bank account. It is a good idea in case you want to separate your payment. Just consider additional bank fees, since this account will be short-term in nature.

- Gather and organize all documentation. Lenders will likely want you to provide the documentation, but it will be much easier to adapt if you’ve already collected and organized your data.

- Consider how to record PPP loan in the accounting software: According to the GAAP, this loan remains a payable until the bank provides the notice of forgiveness or principal payment was made. Therefore, you need to keep this amount as a payable loan until you have received a document that this loan is indeed forgiven.

3. How to keep your qualifying expenses:

Payroll costs:

  • Whether you use an outside payroll processing company or run payroll by yourself, keep all documents of the dollar amount and the payment date. Both electronic and paper forms are acceptable. Ensure you have any other documents: timecards (if you process payroll internal); Payroll reports (if you have a third-party payroll company), etc.