If you are a small business who received Paycheck Protection Program (PPP) funds, you might be scratching your head, wondering what you can use them for. Many small businesses are having a challenging time deciding what the best course of action for spending their forgivable loans are. Our CEO, David Secunda, recently sat down with a panel of experts on May 13th, 2020, to talk about all things PPP and PPP loan forgiveness. Hopefully, the information shared will help you stay better informed on this topic.
Our panel included the following experts:
- Suzi Bahnsen, Assistant Director at the Boulder Small Business Development Center
- Troy Heinkoff, Managing Director at MATH Venture Partners
- Chuck Cotter, Partner at Holland And Hart
- David Payne, CPA at David Payne Accounting Services
We were so excited to connect with such a knowledgeable panel of experts on this confusing topic. If you like video, you can watch the panel below. On the other hand, if you like the written word, we’ll cover a brief overview of the video content below.
Note: Before you dive into this video, this webinar and the content provided within it is general information and doesn’t constitute legal or professional advice. You should consult with your legal team and experts to understand how PPP affects you and what your next steps are if you are funded. Also, it should be noted that this webinar was recorded on May 13th, 2020. Please check out the Small Business Administration website for the most up to date information.
The Importance Of Accounting When It Comes To Your PPP Loan
PPP loans are not automatically forgiven. As a small business owner, you need to keep on top of accounting so that you can show where your money went at the end of the eight-week program. Troy Heinkoff shared these fantastic best practices for accounting and keeping your PPP money protected:
Open a separate bank account with your PPP loan amount. If you only have that money in that bank account, and then document each time money is taken out, any audit of that money will be a breeze.
Try to align any payments within the eight weeks that you can spend your PPP amount instead of paying one week or two weeks behind. This will allow you to have the best shot at utilizing your money correctly, whether Congress decides to use accrual-based or cash basis accounting. Paying within the eight weeks for costs accrued during the eight weeks might not be easy. You might need to figure out unique payment terms for things like rent. Make sure they are accrued and paid during the same eight-week timeframe. If you chat with your landlord or the person who is over your mortgage, you can usually set up those special arrangements with them.
What Is Allowable When It Comes To PPP Loan Forgiveness?
When understanding what is forgivable when it comes to a PPP loan, David Payne shared the following advice:
“Your bank, your lender, is the one that’s going to be administering this loan and calculating this forgivable portion. It is a best practice to get in touch with them now and get in touch with them often asking for any templates, guidelines, and checklists. Any guidance or advice that they have because ultimately, they are the ones that are going to be reviewing this.”
It’s important to get clarification from your bank. Your bank may interpret information from the Small Business Administration differently from other banks. You should be able to utilize your PPP loan effectively as long as you follow your lender’s regulations.
Your loan doesn’t have to be used exclusively for paychecks. You can use it on things like rent, mortgage payments, and utilities. Most experts say that you should keep the use of PPP funds to 75% payroll, and 25% other expenses. There is a potential bill floating around Congress called The Heroes Act that might impact the split of how you use your PPP loan.
Tips For 1099/Gig/Sole Proprietors When Managing PPP Loan Forgiveness
If you are a 1099 or gig worker, you might have realized that you are eligible for the PPP. You are also eligible for unemployment benefits under the CARES Act. You need to be careful about how you approach utilizing a PPP loan. Make sure that you are using the loan effectively and correctly.
If you are unsure of what to do as a gig worker, Suzi Bahnsen shared some fantastic advice to help you get started.
- Don’t double-dip. You can’t collect unemployment at the same time you receive a PPP loan. Make sure that you are keeping those programs separate.
- Make sure you are documenting everything. Write yourself checks and be meticulous around documenting, so the PPP forgiveness process is easy.
- Make sure the loan is right for you to begin with. PPP is still a loan. If you don’t qualify for forgiveness later, you’d have to pay the money back.
- Don’t get creative with how you spend the money. Keep it simple and related to what the program is used for.
The PPP has been an interesting topic for small businesses across the country. Getting these loans can help a business stay afloat, but the language around these loans haven’t been the most helpful. We hope our panel gave you some food for thought as you consider how a PPP loan will affect your business.