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My PPP loan got funded! - Now what?

Note: This is the current guidance we have. Many organizations, including the AICPA, have provided recommendations to the Feds. Further guidance and amendments are expected in the near future.

As of now, for the 8 week period after funding [note: not 2 months] to be forgivable or partially forgivable, the loan proceeds must be used to pay payroll similar to pre-pandemic, and at least 75% of the funds must be for payroll costs. Up to 25% may be used for some other expenses, such as utilities and rent. If not rent, then the mortgage interest on the building payment.

The employer must also have the same number of full-time equivalent [FTE] employees as pre-COVID. This can be your average over the 8 week period, or it can be your actual FTE employees as of June 30, 2020.

With this ‘double requirement’ this latter FTE item deserves attention in order that your loan forgiveness is not reduced.

We expect the utilities expense definition to be fairly liberal including the standard items, plus internet and telephone.

Payroll costs include gross wages/salaries, state unemployment tax, health insurance benefits, pension plan benefits, etc. Payments for salaries and health insurance for officers similar to ‘’prior to COVID’ are included.

The borrower will report to the lender with limited documentation required; most likely a payroll report and backup for the operating expenses.

Any portion of the monies not so used within 8 weeks will not be forgiven, and must be paid back over 18 months at 1%, after a 6 month delay.

That’s really it as far as the basics, according to guidance given so far. For more specifics, see the topics below:

  • How can PPP loans be used?

  • What qualifies as payroll costs?

  • What certifications need to be made by the borrower?

  • Can the lenders rely simply on the borrower’s documentation only?

The guidance we have is limited to the following exact text from SBA Docket SBA-2020-0015 1 CFR Part 120.

Section 2r:

How can PPP loans be used?

The proceeds of a PPP loan are to be used for:

i. payroll costs (as defined in the Act and in 2.f.);

ii. costs related to the continuation of group health care benefits during

periods of paid sick, medical, or family leave, and insurance premiums;

iii. mortgage interest payments (but not mortgage prepayments or principal


iv. rent payments;

v. utility payments;

vi. interest payments on any other debt obligations that were incurred before

February 15, 2020;

However, at least 75 percent of the PPP loan proceeds shall be used for payroll

costs. …….the borrower will have to document the proceeds used for

payroll costs in order to determine the amount of forgiveness.

Section 2f:

What qualifies as “payroll costs?”

Payroll costs consist of compensation to employees (whose principal place of

residence is the United States) in the form of salary, wages, commissions, or

similar compensation; cash tips or the equivalent (based on employer records of

past tips or, in the absence of such records, a reasonable, good-faith employer

estimate of such tips); payment for vacation, parental, family, medical, or sick

leave; allowance for separation or dismissal; payment for the provision of

employee benefits consisting of group health care coverage, including insurance

premiums, and retirement; payment of state and local taxes assessed on

compensation of employees;

Section 2t:

What certifications need to be made?

Documentation verifying the number of full-time equivalent employees on

payroll as well as the dollar amounts of payroll costs, covered mortgage

interest payments, covered rent payments, and covered utilities for the

eight week period following this loan will be provided to the lender.

Section 3c:

Can lenders rely on borrower documentation for loan forgiveness?

Yes. The lender does not need to conduct any verification if the borrower submits

documentation supporting its request for loan forgiveness and attests that it has

accurately verified the payments for eligible costs.

Scott’s Recommendations:

Make a general plan as to how to use the funds to pay employee costs for the best benefit of your business. That my include some hiring and firing. Continue to pay benefits as previously.

If typical raises and/or bonuses are appropriate, those should be allowable.

Revisit the actual expenditures of your plan every 2 weeks or so to see if you are on target, and make adjustments accordingly.

Consider altering your payroll paycheck date some time during the 8 week period to assure you issue a final payroll at the 8 week mark.

If you offer work to employees who are on unemployment, and they opt to not accept, I recommend you clearly document that. Because some employees may be making as much or more on unemployment than they were prior to COVID, that employee may opt not to return to work. Recent guidance from the SBA within the last few days indicates that if a re-hire turns down the employment, the employer can still count that person towards the FTE requirement.

It is not necessary to place the received funds into a new or separate checking account, and pay the qualified expenses from there.

Finally, as of now, the IRS has ruled (IRS Notice 2020-32) that the expenses paid with a forgiven PPP loan will NOT be tax deductible.

For planning purposes, we stand ready to respond to your inquiries, and to assist you in any way possible to assure your loan is entirely or almost entirely forgiven.

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