What should I know before I start spending?
What can I spend my PPP funds on?
With the extension of the Payment Protection Program from an 8 week period to a 24 week period, businesses now have more flexibility when it comes to how they allocate their money into their business. PPP funds are forgivable when used on approved expenses. The time to use the loan begins when the funds are received and can be split into four main categories:
- Payroll
- Utilities
- Mortgage Interest
- Rent & Leasing Payments
What is included in “payroll”?
The majority of PPP Loans will be spent in payroll, accounting for approximately 60% of it. A general rule to use your payroll funds effectively is to make sure you keep your FTE (full time equivalent) hours up and do not cut employee wages by more than 25%. Examples of payroll expenses that can be included in your PPP Loan Forgiveness are:
- gross salary or wage
- gross commissions paid leave (vacation, family, medical or sick leave, not including leave covered by the Families First Coronavirus Response Act)
- allowances for dismissal or separation paid
- employee benefits costs (including retirement contributions)
Is there anything I need to do while spending my PPP Loan?
Make sure to keep track of your expenses!
Document every expense that you have used your PPP Loan for in order for it to be forgiven. Without receipts or another type of documentation, you may not be eligible for Loan Forgiveness. Some major things to keep organized are:
- payroll records copies of mortgage interest
- rent
- utility payments
- bank account statements
*A tip to organize your expenses is to separate your PPP funds from the rest of your budget in order to keep a clean record when documenting expenses. Some people like to keep their funds in a separate account to make it easier.
What do I do at the end of the 24 week period?
If you are fortunate and have additional funds at the end of the 24 week period you have two choices:
- Return it to your lender
- Use it, but keep in mind these funds will accrue 1% interest
If part of my PPP Loan is not forgiven what do I do?
If you did not allocate your expenses correctly you can find yourself needing to pay back some of the money you borrowed. If you feel like you spent the money correctly, yet are still required to payback the funds you can appeal the decision according to the SBA and Treasury. However, if your appeal is denied, or you needed to allocate your expenses differently for whatever reason here are the options for paying back unforgiven expenses:
- 5-year loan term (no penalty for paying off expenses early)
- 1% interest rate (accruing immediately)
- 6-month payment deferral from the date of loan disbursement
With that in mind, make sure you follow the guidelines to ensure your forgivable amount is not reduced!