ppp loan forgiveness

How to Maximize Your PPP Loan Forgiveness

Edward J. Jacobson, CPA, CVA Coronavirus, Business Management Leave a Comment

PPP loan forgiveness

For many small businesses, applying and getting approval for their Paycheck Protection Program (PPP) loans was not without its glitches. But the effort is worthwhile considering the loans provided you valuable infusion of capital and are potentially eligible to be forgiven.

“Potentially” is the operative word here because it will depend on how many people you employed, what you paid them, payment of the other eligible expenses, and how you provide support for these payments.

While the rules for spending the money are relatively straightforward, accounting for it – with the solid documentation required – can be much more nuanced. Falling short in the documentation process could cost you dearly.

This is the overall concept:

Requirement  - 75% or more of the funds must be spent on payroll, (including wages, MD unemployment taxes, employer’s share of group medical insurance and retirement plan benefits), and 25% or less on rent and utilities, and maybe some interest on debt.

Forgiveness – percentage of loan forgiveness is determined by Number of employees (full time equivalents) during the 8 weeks following receipt of PPP funding as percentage to number of employees during the period February 15, 2019 through June 30, 2019 or January and February 2020 (Baseline Period).

Even though you may still be waiting on the funds, it is not too early to start planning how you will track and report their use. Here are some tips for making your documentation more foolproof.


Hire a payroll service or maintain proper payroll records

If you don’t use a payroll service, this would be an excellent time to consider it. To qualify for loan forgiveness, you will need to show that at least 75 percent of your PPP funds were used for payroll, and you will need to show how many people you employed during the 8 week period after receiving the funds versus your prior amount of employees during your baseline period.

You can either spend your time digging through your records and bank accounts, or you can hire a payroll service. For less than $100 per month (starting rate), the payroll service will automatically provide spreadsheets with the documentation and calculations needed to verify your payroll expenses.


Track PPP spending with separate bank account and/or new general ledger accounts 

Most banks are suggesting that businesses who receive PPP loans should set up a separate bank account to track the use of funds. If your bank suggests this method and has the capacity to help you set up the accounts, do it!

In addition, it’s a good idea to set up new general ledger subaccounts in your accounting software. If you use QuickBooks, these are referred to as “classes.” After the eight-week period, you can print out a class report detailing and summarizing all eligible expenses for the forgiveness calculation.


Pay special attention to “owner compensation”

As part of your PPP loan request, you can include funds to cover owner compensation up to $15,385 for the eight-week period for wages. Also, additional qualified payroll costs such as health insurance and retirement benefits can be added to this amount for owners.

For owners of sole proprietorships or partnerships, tracking and documenting compensations is a little different. According to guidelines issued by the Small Business Administration on April 14, 2020, for self-employed individuals, you can use compensation records (i.e., Schedule C or K-1) from 2019 to establish your 2020 pay rate for purposes of the PPP. So, if your 2019 total compensation was $75,000, you can set a 2020 pay rate of $1,442 per week. However, the maximum is still $100,000 annually. For self-employed applicants, you are not able to include retirement plan costs and health insurance for the owner.


Document everything – twice 

To receive forgiveness, your lender will require full documentation of your PPP expenditures. In addition to detailed recordkeeping, you will need to provide documentation for everything having to do with each disbursement, including the dollar amount, date, and support to ensure that it belongs in the forgiveness category.

For payroll, you would need to provide the payroll reports for the 8 weeks, including possibly, copies of payroll checks, and or electronic payment receipts coming from your bank account. For health insurance payments, you should show evidence of payment along with the monthly statement from your insurance company. You will need to show evidence of payment for your retirement plan contributions with some external documentation that the payments went towards this purpose.

For your rent or mortgage payment (interest portion only) and utilities, use canceled checks or electronic receipts and supplement them with the actual rental or mortgage agreement and your utility service contracts. Only agreements or contracts entered into before February 15, 2020 are acceptable.


Don’t try to maximize PPP loan forgiveness alone

The government has thrown small businesses a critical lifeline with the PPP. However, like many government programs, the devil is always in the details. And, the guidance provided by the SBA continues to change. You may consider yourself self-sufficient when it comes to bookkeeping and filing taxes, but this is not the time to go it alone.

For example, things can get dicey for cash-basis businesses or accrual-basis expenses and whether certain disbursements can be counted within the eight-week period. It is important to note that not all the definitions have been written yet. One wrong move could threaten your forgiveness benefit. But with proper planning you can maximize the amount that will be forgiven.

Contact us if you need help maximizing your PPP loan forgiveness.



About The Author
Edward J. Jacobson, CPA, CVA

Edward J. Jacobson, CPA, CVA

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