As a professional bookkeeper, I’ve seen many small business owners scramble to secure a Paycheck Protection Program (PPP) loan, striving to weather the economic impact of COVID-19. For those that did secure funds, they were soon met with guidance on loan forgiveness from the Small Business Administration that was hard to decipher and added further complexity around the financial certainty of their business. In an effort to bring clarity to these unchartered waters, I wanted to share some information on the most common questions I have received from small businesses.

Answers to the 3 Most Pressing Questions from Business Owners

How should I spend my PPP loan if I want it to be forgiven in full?

While you don’t have to use all of your loan during the loan forgiveness covered period, only costs incurred during this period (and certain eligible costs incurred but not paid during that period) are eligible for forgiveness. Based on current guidelines from the SBA, to maximize loan forgiveness, at least 60% of your loan should be spent on eligible payroll costs, that include: salary, commissions, wages or similar compensation as well as employee benefits including PTO, insurance premiums, certain taxes assessed on compensation, retirement benefits or allowance for employee separation or dismissal. Up to 40% of your loan funds can be used on other eligible business costs, including mortgages, leases and utilities. Factors that could reduce your loan forgivable amount include reducing the average weekly number of full-time employees during the loan forgiveness covered period to a number lower than the average weekly number of full-time employees between January 1, 2020 through February 29, 2020 or February 15, 2019 through June 30, 2019 and not rehiring those or similarly qualified employees by December 31, 2020,  or reducing employee wages by more than 25%. However, if your business was unable to operate between February 15, 2020 and the end of your loan forgiveness covered period at the same level as before February 1, 2020, due to compliance with certain federal requirements or guidance issued between March 1, 2020 and December 31, 2020 related to maintaining standards of sanitation, social distancing or other work or customer safety requirements related to COVID-19 then your forgivable amount may not be reduced.

What tracking will need to be done to prove the expenses I paid using PPP loans were eligible for forgiveness ?

Your PPP loan forgiveness application must include documents verifying your payroll expenses for the covered period, including bank account statements, payroll tax forms or payment receipts as well as documentation verifying the number of employees during the reference period as evidenced by payroll tax filings. Non-payroll expenses such as business mortgage interest or rent payments can be tracked via copies of lender amortization schedules or current lease agreements and receipts. For utility payments, be sure to track invoices from February 2020 and those paid during the covered period along with account statements or receipts verifying those payments. There are also online tools to assist you with these calculations. For instance, if you use a financial management platform such as QuickBooks and received your PPP loan through QuickBooks Capital, you can leverage a Forgiveness Estimator to understand and quantify how current and future spending may impact your forgiveness amount.

As a borrower, you’ll also need to maintain all records related to your PPP loan and forgiveness application for six years after the date of forgiveness or loan repayment.

How does an Economic Injury Disaster Loan (EIDL) affect my PPP loan forgiveness?

Under the EIDL program, eligible small businesses (and agricultural businesses) can apply for  working capital loans up to $2 million to pay fixed debts, payroll, accounts payable and other bills that business owners can’t pay due to the economic impact of the coronavirus. Some small businesses and other eligible applicants may be eligible to apply for both programs. However, because a business cannot receive a loan under both the EIDL and PPP programs for the same purposes, advances you receive from the EIDL program will be deducted from the forgivable portion of your PPP loan.  PPP applicants that received an EIDL loan between January 31, 2020, and April 3, 2020, and used those funds for payroll costs, must use the PPP loan in part to refinance the EIDL loan.

The Road Ahead

A company’s finances tell the story of the business. It’s helpful to keep in mind that this period is just one chapter in that story, albeit an important one. Small businesses across the nation led the way in pivoting to fresh, creative ideas, much-needed innovation and the rapid adoption of new approaches to meet not only their business’ needs, but also those of their community. They did so by looking at the state of their finances, grappling with realities and creating new opportunities in a time where it was easy to become overwhelmed by despair and lack of control.

As we optimize PPP loan forgiveness and move forward in a world that’s been changed by this pandemic, the ability for small business owners to make business decisions in a way that’s directly informed by a strong understanding of their books will be all the more important. Whether you’re turning to the accountant on your team, an outside consultant or a QuickBooks expert like me, you can enter recovery with a new approach to doing business backed by deep insights and standards rooted in your financial data. This chapter of your business will surely be an unforgettable one, but there’s so much more to your story that’s still left to tell.

Note: The Paycheck Protection Program Flexibility Act (“PPP Flex Act”) was signed into law on June 5, 2020. The PPP Flex Act extends the availability of loans under the Paycheck Protection Program (PPP) and adjusts certain rules applicable to PPP loans. The information reflected here may, therefore, be outdated. We are working to update our resources to reflect these updates to the PPP, so be sure to check back soon. Please refer to the latest guidance from the SBA and Treasury to confirm current program rules and how they apply to your particular situation.

QuickBooks Capital is licensed as Intuit Financing Inc. (NMLS # 1136148), a subsidiary of Intuit Inc. In California, loans are made or arranged under CFL Licensed #6054856. 

Minimum loan amount varies by state.

Intuit Financing Inc. is a licensed lender in states that require a license. Our service is limited to commercial or business loans only. State licenses include: AK #10000990, CA #6054856, DC #ML1136148, FL #CF9901279, MD #03-2339, MN #MN-RL-1136148, NM #1899, ND #MB102690, RI #20183584SL, RI #20183583LL, SD #MYL.3279, TN #166418, VT #7194 and VT #7195.

Intuit Financing Inc., (d/b/a QuickBooks Capital) is an authorized SBA Paycheck Protection Program Lender.

PPP loan and forgiveness calculations and eligibility may vary. Refer to the SBA.gov for information about your particular situation.

This content is for information purposes only and should not be considered legal, accounting or tax advice, or a substitute for obtaining such advice specific to your business. Additional information and exceptions may apply. Applicable laws may vary by state or locality. No assurance is given that the information is comprehensive in its coverage or that it is suitable in dealing with a customer’s particular situation. Intuit Financing Inc. (d/b/a QuickBooks Capital) does not have any responsibility for updating or revising any information presented herein. Accordingly, the information provided should not be relied upon as a substitute for independent research. Intuit Financing Inc. (d/b/a QuickBooks Capital) does not warrant that the material contained herein will continue to be accurate nor that it is completely free of errors when published. Readers should verify statements before relying on them.

Pam Bingham, EA, MAFM, PB Tax and Accounting Services, Intuit QuickBooks ProAdvisor

PPP stock photo by Vitalii Vodolazskyi/Shutterstock