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PPP Loan

I’m getting a PPP Loan – How do I handle the money!?

Congratulations! You’ve applied for and are set to receive funds from the CARES Act’s Payroll Protection Program (PPP) Loan. Every bank is handling funds differently, but we know that some of you have already received a deposit for the total loan amount! 

In order for the loan to be forgiven, what can I use the loan proceeds for? 

The PPP loan is good for an 8-week period beginning when you sign the loan paperwork. In order for the loan to be forgiven, you must use the loan proceeds to pay for payroll (75% of the total amount of the loan), rent, utilities and interest on debt (no more than 25% of total loan combined). 

Payroll,” in this calculation, ONLY INCLUDES the same items that were used when calculating the loan amounts. These items include: 

  • All gross wages, tips, PTO, etc
  • Employer tax for state unemployment ONLY
  • Employer contributions to retirement programs
  • Premiums paid for group health insurance

What is NOT included in the “Payroll” amount:

  • Earnings in excess of $100,000 annually
  • Employer portions of social security, medicare or federal unemployment
  • Paid Sick and FMLA leave under the FFCRA
  • Payroll processing fees

So how do I make sure I’m only paying for the right things with the PPP money?

You should talk to your bookkeeper or accountant first! Make a plan. There are a couple of easy options:

  • When loan proceeds are deposited to your account, post them to an “asset” account in Quickbooks. Do journal entries with each payroll for only the items detailed above to track the usage. 
  • Place the loan proceeds in a separate bank account. Only transfer the precise amounts detailed above to your checking account to cover payrolls, rents, etc. This keeps a similar paper trail as above. 
  • Some banks have discussed doing disbursements only upon request from you with proper documentation as stated above. This will ensure easy tracking as you will not be given the money until it’s “guaranteed” correct. 

For our bookkeeping clients: we have already begun planning how to track this for you. More info to come. 

So I opened a separate bank account, can I give it to you to withdraw payroll funds from? 

No. Please continue to allow us to withdraw funds from your standard operating/payroll acount. You should transfer the eligible funds from the separate account to your operating/payroll account to assist you in tracking. 

Changing accounts is a complicated process (more paperwork from us) and could lead to errors and delays in processing your payrolls. We do not to incur unneccessary errors during this fragile time. It is much easier (and better for tracking) to transfer eligible funds from the new account to your operating/payroll account for payroll withdrawals. 

What Documentation is Required for loan forgiveness? 

We’re not sure yet; SBA has not yet issued full guidance on forgiveness quite yet. But, you should plan on having an audit-like process when applying for forgiveness. Be sure to have documentation from all payrolls paid as well as the “eligible amounts” that loan proceeds were used for. You should document this with every payroll. It’s probably wise to create a separate folder with all of this information to prepare for the forgiveness process. 

Do I pay all my employees, even if they’re not working, with PPP funds? 

Yes, the whole idea of the PPP Loan is to put employees back on payroll and take them off of unemployment. So, regardless of whether or not your employees are working, you need to put them back onto payroll so you are eligible for forgiveness. We do not know the exact formula yet, but you will need to maintain your FTE count and wage base in order to be eligible for forgiveness. 

Since you’re paying your employees, it might be beneficial to bring them back to work (in a safe, healthy and distant manner) to at least derive some benefit from them. Perhaps they can do deep cleaning, marketing from home, painting, etc? Get creative. 

What is this FTE (full time equivalent) count everyone keeps talking about? 

Your full time equivalent (FTE) count is the average number off full time employees you pay. There are many ways to calculated this. We don’t know the exact formula or time period that the SBA will use to ensure full forgiveness. However, there are indications that they will use the Affordable Care Act (ACA) FTE calculation as a guide. Basically, employees who work over 30 hours are counted as 1 FTE. Employees who work less than 30 hours are pro-rated and are a fraction of an FTE. 

We do know that if you do not maintain your FTE count, your forgiveness will be pro-rated to that effect. If your FTE count was to be maintained at 20 employees, for example, but during the 8-week PPP period, you had an FTE count of 19, you would receive forgiveness on only 95% of your PPP loan. You would then be required to pay back 5% of the loan amount (as long as all funds were used on eligible items). 

Holy Mackerel there are a lot of rules! 

Yes, there are! We hope that we’ll have more guidance from SBA, IRS and the banks soon about how this will all work. Until then, we’ll use our best judgement and what we know today to keep you on top of things!