There is a lot of confusion around the federal loan programs that are currently available, particularly the PPP loan, and Backyard Bookkeeper would like to bring some common sense to the table.
The first point that needs to be made is everything around the Payroll Protection Program has been evolving from the moment it launched. Even now that we are well into our second round of funding, the situation continues to evolve. We still don’t know what paperwork or documentation will be required to submit to qualify for the loan forgiveness.
Until those regulations are clarified and the forgiveness process is laid out officially by the SBA, the best we can do is follow the rules that have been issued and keep meticulous records so we can produce documents when they are required. Here is Backyard Bookkeeper’s guidance on the matter:
Some or all of the loan can be forgiven, effectively turning the loan into grant income. Based on our current understanding, loan proceeds spent on “qualified business expenses” (more on that later) within the eight weeks from the date of the loan can be forgiven, as long as at least 75% of the total amount forgiven is spent on payroll.
What do you do with the funds when you get them? I have seen some bad advice circulating about how to manage the funds, so I will offer some Do’s and Don’ts.
Here’s the thing: this should be fairly easy for most small businesses who have managed to keep people employed so far. The original loan amount was based on 2.5x average monthly payroll, and they will forgive about two months’ worth of expenses (eight weeks, to be exact). So plan out how you will use the money and when, and ensure that it gets spent within that eight week window, and you should be fine. This may be more complicated for businesses that have furloughed employees or reduced pay during this time – in those cases I highly recommend you talk to your CPA for guidance.
And lastly, a list of those “qualified expenses” that can be counted toward loan forgiveness: