Make Sure You Know This About Your PPP Loan

Have you received your Payroll Protection Plan (PPP) money? If so, that’s great! You may be wondering what’s next. It is essential to understand the loan and some best practices for getting the most out of it. Let’s take a look at the critical facts.

What is the Goal of the PPP Act?

When the Treasury Department was setting up the PPP specifics, they were estimating what small businesses in the US needed to keep paying their employees through June 30th. In an attempt to save the economy, and help prevent overloading the unemployment numbers, the stimulus package was designed to keep businesses with the ability to pay their employees, and to pay their business expenses during the quarantine period.

What is the PPP Money Supposed to Be Spent On?

Although 25% of your PPP money can be spent on operating expenses, the main goal is a three-pronged approach to staying afloat. You should be using it to pay your employees, to keep the doors open, and to keep the lights on. In other words, payroll, material and direct labor, and rent.

Can my PPP Loan Become a Grant?

If you want your PPP loan to be designated as a grant that you do not have to repay, then it is essential to provide proof that 75% of the money you received was spent on paying your employees, or on payroll-related expenses. If you are unable to demonstrate that, you will be responsible for paying the loan back.

The Importance of Record-Keeping for Your PPP Money

You must have spotless records of how your PPP money was spent if you hope to have it convert to a grant. As soon as you receive your money, your best strategy is to open a separate bank account and put all your PPP money in it, so it isn’t blended with the rest of your money. The separate account makes it easier to inspect your books and create an audit trail. If you need to show the government how you are spending the money, this is the easiest way.

Make sure that all your Payroll, Payroll Taxes, Retirement Benefits, Health Insurance expenses come out of that account.

Be Careful Not to Reduce Your Payroll

Do not reduce your payroll by as much as 25% or more… You must keep your labor costs at 75%, both in headcount and total payroll costs. Use your first quarter 2020 as your payroll baseline and watch your percentages. Failure to do so will make you ineligible for grant status.

What Else Can We Spend the Money On?

When it comes to spending the other 25% of your PPP money, use it to pay rent, mortgage interest, and utilities. Remember the guidelines… pay your people and keep the doors open. That’s all this money is meant to do, and the follow-up is inevitable. Stay within the guidelines to ensure you don’t incur extra costs to your business.