Corporate Alert: "Show Me the Money" - PPP Loan Proceeds and Forgiveness Considerations

Now that many small businesses are receiving disbursements of Paycheck Protection Program loan (PPP loan) proceeds, the focus turns to loan forgiveness; a hurdle that recipients will have to tackle in eight weeks. We have compiled a list of things to consider to ensure that your forgiveness application doesn’t create any roadblocks for your business.

Record Keeping - Adequate records will be needed when applying to have all or a portion of the PPP loan forgiven. Later, adequate records will be needed in the preparation of any financial statements (whether for internal use only or external) and for any tax returns.

Practical Considerations - Some small businesses may have their loan proceeds put into their main bank account and the funds may be used for other expenses or used to pay the most critical payment due without any consideration of whether it qualifies for PPP loan forgiveness.

Best Practices - Recognize and plan for exactly what items can be paid using the PPP loan proceeds. Track in your books and record the dollars spent, maintaining a paper (or scanned) copy of documentation on those items paid that you believe will qualify for part of the PPP loan forgiveness. This includes payroll expenses and payments of rent and utilities. Here are a few more best practices:

• Open a new bank account that PPP loan proceeds may be deposited directly into to reduce the risk of commingling funds.
• Because 75% of the PPP loan proceeds must be used for payroll expenses, it is crucial that borrowers keep detailed payroll records for the eight week “covered period”. Also maintain detailed records of the payment of those other eligible expenses.
• Set up new general ledger accounts for each type of expense you expect to pay that will qualify for forgiveness. Properly reflect the debits and credits to these accounts as expenses are paid.

It’s important to note that a loan forgiveness application will need to be filed with the bank that issued the PPP loan in order to qualify for forgiveness. Forgiveness is not guaranteed!  So, it is important that a business have the proper documentation to support the certifications that must be made on the application. Once the forgiveness application is submitted, the lender has 60 days to make a decision on forgiveness.

Because an incomplete forgiveness application renders a borrower completely ineligible for forgiveness, it is crucial that borrowers work with their professional advisors to ensure that all requirements for the PPP Loan Program are met. The attorneys at Brouse McDowell are available to assist all small businesses in navigating the PPP loan forgiveness process.