The Paycheck Protection Program has helped thousands of businesses get out of tight situations, but if you’re not using your loan properly, you might have to pay the loan back with a 1% interest. In this article, you will be given tips on how to use your PPP correctly so you will be eligible for loan forgiveness.
What Can I Use My PPP Loan For?
The funds you received for your PPP loan can be used for the following: payroll, health benefits, rent, utilities, and mortgage interest. All expenses used in these categories are eligible for loan forgiveness. Using your loan for anything outside of these expenses could result in a denial of loan forgiveness. The timeline for expenses that can be used for the PPP loan is only for those that happened over 24 weeks (or 8 weeks if you choose the accelerated schedule), starting from the day the first payment was made by your lender. This is not always necessarily the date on which you signed your loan agreement.
Loan Forgiveness
The PPP loan and forgiveness regulations can be comprehended by taking into account the purpose of the program, which is to create a source of funds to allow businesses to keep their employees paid for the most part at a similar level as before the COVID-19 pandemic began. PPP loans encourage employers to keep employees and still pay their salaries; the CARES Act allows loan forgiveness of up to 100% of the loan proceeds that are used for purposes within their guidelines. One guideline that must be followed is in order to receive loan forgiveness is the 60/40 rule. The 60/40 rule is that employers must use 60% of their loan on payroll costs. Another regulation that must be adhered to is you need to keep 75% of the payroll you had before COVID-19. If you fired any employees due to the Corona Virus crisis and didn’t use your loan to help reinstate that employee, you could end up not qualifying for loan forgiveness. If you need help reaching the 75% payroll and reinstating employees who were put on furlough, the paycheck protection program will recognize this as using the loan properly, and you will be able to spend the loan to reach these requirements. If you have any questions about COVID-19 Forgiveness for our CPAs in Lombard, feel free to contact us via email or by phone.
Bookkeeping is Essential
Organized record keeping will be crucial for getting your loan forgiven. You’ll need to keep a record of eligible expenses over the 24 weeks. Your lender will probably ask these documents to be in digital format, so take the time to scan any paper documents and keep copies of all your records. These necessary documents you will need to turn in with your PPP forgiveness application are the following: your payroll reports, payroll tax filings, documents regarding income and unemployment filings, documents certifying your eligibility, payment receipts regarding rent, mortgage, and any other expenses. Your lender may ask for additional information, so make sure you are accountable for every expense used by your loan. To receive loan forgiveness, you must fill out an application that can be obtained from your lender.