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PPP Loan Forgiveness Strategies


Businesses who obtained Paycheck Protection Program (PPP) loans are currently in a phase of program uncertainty. There are currently more questions than answers about the finer details of what will ultimately be forgiven and what will be rolled into a low-interest loan with your lender. While we wait for the SBA to issue (overdue) forgiveness guidance, there are several steps that we advise taking now to set your business up for successful loan forgiveness. Consider the following based on the current rules under the CARES Act:

  • Document internally, in a memo/email or other way the need for funds to maintain operations. See BP Blast from May 4, 2020.
  • One key element of PPP expenditures is the ratio of payroll related expenditures to other allowable uses of funds. The program requires using at least 75% of the funds received on payroll expenses. Anything less than 75% will result in a pro-rated reduction of the amounts forgiven.
  • Many believe the loan proceeds are best maintained in a bank account that is separate from general operating accounts of the company. Ideally your company will use a separate bank account and general ledger account to track the flow of funds from the PPP loan. At a minimum, a unique set of general ledger accounts is a best practice.
  • Although it may seem obvious, have a process in place for identifying costs that are known to be forgivable under existing guidance. Payroll, rents, utilities, and interest on covered debts all apply. We expect that there will be scrutiny and potential repercussions for businesses that do not use loan proceeds for allowable expenditures. As always, document everything as you go. If your business is subject to review later, you’ll thank yourself and your team for diligence today. “It is not what you know, it is what you can prove.”
  • Utilize a master excel spreadsheet, tracking weekly uses of PPP loan proceeds, which summarizes all forgivable expenses which sums to the grand total you’ll be applying for at the end of the covered period. Reconcile the weekly uses of cash with the balance of the remaining cash available from the loan proceeds.
  • Maintain a folder (either physical or electronic) to file copies of all applicable payroll records, rent and utility invoices, mortgage interest statements and any other relevant documents.
  • Be strategic with payroll decisions during the 8 week period. Don’t take any actions that will reduce amounts of loan forgiveness that would not have a greater offsetting benefit to the business. Reductions in payroll or layoffs are to be avoided entirely if possible. With additional “penalties” for any reductions in salaries or wages paid to full-time equivalents during the covered period, it may be better to pay an employee to be under-utilized than it would be to reduce their hours or furlough.
  • Do not go it alone if you are responsible for tracking the use of PPP funds. Even though ultimately one person will be responsible for collecting data and the reports necessary to apply for forgiveness, delegate tasks when possible to other members of your accounting team. Maintain consistent communication upward with owners or company officers about progress on strategies and decisions made on the use of PPP loan funds. It may not be possible to over-communicate on this issue right now.
  • As part of your greater cash flow management strategies, or if you don’t typically maintain a cash flow projection, now is a great time to pay close attention to short-term and intermediate-term cash flow sources and uses in your business. Potentials for disruption are numerous and the use of PPP loan proceeds is only a component of the bigger picture in projecting company cash flows. A short-term cash flow plan may also help in tracking what expenses, on a weekly basis, can be deferred, accelerated or mitigated including those covered expenses (payroll, rent and utilities) that will be paid for using PPP loan proceeds.

Berntson Porter is here to help you navigate these unprecedented times. Visit our online Resource Center for up-to-date information about COVID-19 legislation that impacts you and your business.


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