If you were one of the small business owners who received a Paycheck Protection Program (PPP) Loan from the Small Business Administration (SBA), it is vital for you to understand how to use your PPP funds. To assist clients and community members, we’ve provided a recording of our webinar and a PDF guide to help answer your questions. Here are some of our key recommendations.
Separate the Funds
We recommend you keep your loan proceeds segregated from your regular funds to aid in calculation and documentation for forgiveness. Continue to pay your payroll and bills out of your normal account and then reimburse that account with loan funds. This is important because there are certain parts of payroll that are not forgivable (like employer FICA taxes). If you run an entire payroll through an account with loan funds, you will inevitably spend unforgivable money, which you will have to pay back.
Run a Calculation
After receiving your loan funds, the first thing you can do is breathe a sigh of relief. The second thing you need to do is run a calculation to determine how much of your loan can be used on qualified expenses besides payroll. 75% of your loan must be used on payroll (including healthcare and retirement) and the other 25% may be spent only on the qualified expenses of rent, mortgage interest, and utilities (electricity, gas, business transportation, water, phone, and internet).
So, take your loan value and multiply by 25% – this is the most you can spend on other qualified expenses (rent, utilities, and interest on mortgage obligations). Estimate the amount you will spend on 2 months of these expenses to see how close your actual amount is to the calculated amount. Refer to pages 4-6 in our guide for clarification on this calculation.
Ask for Help
If you are concerned or have questions, this is not a situation to “wing it”. If you spend these funds on unqualified expenses, you can be charged with fraud. If you use these funds to pay for more than 25% of non-payroll qualified expenses, you are going to be left with debt on this loan. Running the payroll calculation part can be especially difficult because there are many factors to add in, varying salary levels, and sometimes even varying benefits among your employee group to consider.
If you are interested in getting help with your loan use or forgiveness calculation, please email us at [email protected].