6 Ways To Make Sure You Don’t Screw Up Your PPP Loan


Congratulations. You have all the documents for your PPP (Paycheck Protection Program) and hopefully within a few days you will have the money in the bank. Now is the time to start planning how to make sure you are using funds properly.

The most attractive part of the PPP loan is that it is forgivable if you use at least 75 percent of it for labor costs. It sounds easy, but keep in mind that the loan is covered by your bank and when the time comes to review how the funds have been used rest assured that you will need solid documentation on hand. There are also many nuances on how to account for the use of the funds. It can cost you dearly when the time comes to account for how loan proceeds have been used.

This is where many small businesses get into trouble, especially if they don’t have good payroll, bookkeeping, banking, and software practices. So it is a good time to band together; To be honest, you really don’t want to screw this up.

Here are a few things to keep in mind to keep the documentation as simple and complete as possible. And while it’s obvious, I’ll say it every now and then later, be sure to get a CPA review and be with you every step of the way.

1. Get a payroll service.

If you haven’t been using a payroll service, now is the time to get one. For example, services like Paychex automatically sent spreadsheets to their customers containing all the documents and calculations required to apply for and justify a PPP loan. These are not expensive services. If you have few employees, these can be less than $ 100 per month. You should have a payroll service provider even if you are the only employee.
When the time comes to show that at least 75 percent of PPP funds have been used on payroll, there will be no scrapping of records and bank accounts; Everything is there at the push of a button.

2. Throw away the shoebox.

If you’re not using an online accounting system, it’s time to set this up too. Products like Quicken or FreshBooks make your life infinitely easier by delivering reports that give you the numbers you need right away, such as leases, mortgages, home office deductions, health insurance and employee benefits that need to be billed when calculating the loan waiver. For example, the cost of employee health insurance paid by the company can be included in the 75 percent requirement.

3. Keep your PPP funds separate.

Put the PPP funds in a separate account. That way, you can keep a close track of how the funds are used, even if you need to transfer them from one account to another, for example for payroll. To be clear, it is not required to do so, but you want to make sure that you are following this money with the same amount of care as you would think the IRS would review your books.

4. Be obsessed and keep track of everything.

Set up a redundant file to keep track of everything in obsessive detail. For example, copies of pay slips, health insurance bills, entries in a check register for anything related to payroll, commissions, health care costs and premium payments, mortgage, rental and ancillary costs interest, interest on debts you incurred before February 15.01 .2020 and, if available, an SBA-EIDL loan from January 31, 2020 to April 3, 2020.

5. If you are self-employed, make sure that you pay yourself a salary.

If you have an S-corp, keep in mind that you must pay yourself a salary in order for your compensation to be applied to the 75 percent lending requirement. Many S-Corp owners make distributions for a portion of their compensation throughout the year. While this is an advantage of an S-Corp, it is not a payroll as far as the PPP is concerned. Be aware, however, that the PPP program excludes more than $ 100,000 in payroll for any person who earns more than the year. You should consult with your accountant about how to handle your 2020 salary so that you can claim the maximum amount towards the 75 percent threshold.

6. Get a CPA. No, get one now.

I can’t say this enough: get a CPA. You can take pride in the fact that you do your own tax returns, payroll, and bookkeeping, but this is not an area where you would want to risk making a wrong decision. The guidelines for PPP seem to change daily. Small mistakes can result in huge costs. For example, if you go cashless and do your payroll outside of the eight week period after your loan was funded, you could end up losing the benefit of forgiveness. Many online accounting systems include access to CPAs as part of their platform. Whatever you do, be sure to do it under the guidance of a CPA in order to maximize your benefit and compliance with the PPP loan terms.

The PPP program is one of the largest investments we have ever made as a small business country. But, like so many government programs, knowing how to follow the rules is important in order to use them to your best advantage.

Further instructions can be found in the US Treasury Department websitefor the latest information on the PPP and always contact a certified public accountant. Thanks to Steve Nelson, CPA, for providing some of the tips above.

The opinions expressed here by Inc.com columnists are their own, not Inc.com’s.


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