If you have received approval for your PPP loan, what’s next?  It is time to spend the money on qualified expenses AND document it appropriately.  

As a follow up to our post on calculating PPP loan forgiveness, the following is provided to assist with substantiating expenses needed for loan forgiveness. Please note your lender will ultimately determine what is needed, but this should give you a good start on solid record keeping and documentation. 

All expenses for this purpose will be those paid during the 8 weeks following receipt of your PPP funds.  After this 8 week period, a borrower seeking loan forgiveness will be required to submit an application to the lender which generally must include:

• Payroll documents verifying the number of full-time equivalent employees on payroll and their pay rates for your 8-week period:
  • Payroll reports showing the number of employees paid, hours worked, and break out of wages and taxes paid
  • Quarterly payroll tax report filings (Form 941).
  • Filings for state and local taxes assessed on compensation. In Texas, this is the state unemployment tax you pay each quarter with your quarterly report. Note that other “941” taxes are not eligible expenses for loan forgiveness 
  • Documents verifying any retirement and health insurance contributions. This could include bank statements showing payment as well as invoices or statements for the same.
  • Documents that show your full time equivalent number of employees for various periods, which may include:  
    • Feb 15, 2019 – June 30, 2019
    • Jan 1, 2020 – Feb. 29, 2020  
    • June 30, 2020
• For individuals with self-employment income or 1099 income, they will provide their 2019 Schedule C that was filed with their 2019 federal income tax return. Eight weeks’ worth (8/52) of 2019 net profit, not to exceed $100K annualized, will be eligible. 
• Documents verifying your eligible interest, rent, and utility payments (canceled checks, payment receipts, and account statements).
• Check in with your lender on a regular basis to confirm your understanding of what is needed to obtain loan forgiveness and for any additional guidance on documentation requirements. As we have noted a number of times, this is a fluid environment and lenders are updating requirements regularly as the SBA issues additional guidance. 

The CARES Act expressly requires that the borrower be able to adequately document the use of the funds in order to obtain forgiveness.  Good record keeping and bookkeeping will be critical for getting your loan forgiven – you’ll need to keep close track of eligible expenses and their accompanying documentation over the eight weeks.  

PPP Funds Tracking Recommendations:

• Maintaining a separate bank account for the PPP loan funds. Some banks are setting this up as a part of PPP funding, others are not.  This is NOT a requirement of the CARES Act, but can assist greatly in tracking qualified expenses.  
  • When possible, pay qualified expenses directly from this new account.  
  • Alternatively, use the account like a line of credit and transfer funds to your operating and/or payroll accounts for documented, qualified expenses only. 
• For bookkeeping we recommend creating expenses using subcategories (e.g. PPP class) for tracking PPP expenses (Payroll Costs, Rent, Utilities, etc.).  
• Maintain receipts and other corroborating evidence including cancelled checks, payment receipts, transcripts of accounts, or other documents verifying payments on covered mortgage obligations, payments on lease obligations, and covered utility payments.
• Don’t hesitate to reach out to your Beaird Harris team for help and support in creating a solid game plan for documenting qualified expenses.  

The borrower will need to certify that:

• The documentation presented is true and correct;
• The amount for which forgiveness is requested was used to retain employees, make interest payments on a covered mortgage obligation, make payments on a covered rent obligation, or make covered utility payments; and
• Any other documentation the SBA deems necessary.

We anticipate that banks will be informed by the SBA that loan forgiveness will be provided on a very rigid basis.  Companies that have meticulous, verifiable records will endure this process much better than those who don’t maintain such records. As we mentioned in a previous post, we expect banks will be looking closely at documents for potential fraud.  You should be careful about items that could be construed as such, even if that is not your intent.  

As always, we are here to help. If you have received a PPP loan, please reach out to your Beaird Harris team and let us know the following:

• Date of your loan disbursement;
• Amount of loan;
• Any questions you have on game plan and spending the loan proceeds on qualified expenses during the 8 week period.