How do you Spend Your PPP Money Now that You have it?

Posted by PRemployer on May 7, 2020


In a matter of weeks, the novel coronavirus (COVID-19) changed the way we live, the way we work, and the way we buy. Congress recognized the need to help businesses remain solvent and introduced the Paycheck Protection Program (PPP) as well as Economic Injury Disaster Loans (EIDLs). This blog will focus on the things you need to know about PPP, including how you can spend your Paycheck Protection Program money now that you have it.

Money from the PPP may be spent in particular ways in order to reach loan forgiveness. The Paycheck Protection Program  authorized up to $659 billion in low-interest (a flat 1.0%) loans to small businesses (less than 500 employees) potentially harmed as a result of the COVID-19 crisis. Some or all of the loan may be forgiven provided that the businesses spend the PPP money on the allowed categories.

Payroll costs should constitute 75% of your expenditures from the PPP loan. The other 25% of the loan proceeds may be used on:

  • most mortgage interest on mortgages incurred before February 15, 2020,
  • rent under lease agreements in effect before February 15, 2020, and
  • utility fees for service begun before February 15, 2020.

Upon receiving and funding of your PPP loan, you must track the above expenditures for eight weeks. The possibility of loan forgiveness will be centered in this eight week time period and involve two tests. The first test for payroll is that you will maintain the same number of FTEs during this eight week period as chosen in your baseline period prior. The second test is you will have to average the same payroll dollars as the period used in your loan calculation.

Keep careful records of how you spend the money over this eight week period as it will greatly affect the amount of loan forgiveness granted by the SBA.

PPP funds used for anything other than payroll, utility, or rent will most likely not qualify for loan forgiveness. Loan portions not forgiven must be paid back.

So, what constitutes payroll for purposes of PPP? Payroll costs include salary, wages, and commissions. It also means that cash tips (or equivalent), employee benefits, such as group health premiums, severance pay, retirement costs, as well as state and local taxes that apply to compensation. Payroll is capped at $100,000 for any employee or owner.

For sole proprietors and independent contractors, payroll costs mean wages, commissions, income, and earnings from self-employment. This is also capped at $100,000.

Loan repayments.  The PPP defers loan repayments until six months after the disbursal of the loan proceeds, although interest continues to accrue during this deferral period. The loan must be repaid within two years with no prepayment penalty unless it is forgiven. Businesses can anticipate the full amount will be forgiven if they follow the guidelines above.

New Tax Credits and the Impact of PPP.  The government has rolled out several tax credits and opportunities to offset the effects of COVID-19. However, employers who obtain a PPP loan cannot:

The PPP loan program’s ongoing purpose is to provide funds for employers to keep employees on the payroll instead of the unemployment line. 

We highly recommend that you check with your CPA or tax advisor as well as the lender who provided you with a PPP loan for additional guidance on how to use this money. Keeping detailed records is key to getting the maximum relief. We are here to assist you in providing accurate payroll reports.

If you are interested in getting more updates on how to stay afloat during the COVID-19 crisis, we invite you to subscribe to our weekly blog. Please also be on the lookout for additional e-mails; the details of the CARES act are changing swiftly.

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