Now that you have successfully completed Phase 1 of the Paycheck Protection Program (PPP) and the bank has funded your account, the eight-week clock is ticking. Below we have included some recommended procedures, tips and best practices for tracking the activity so that you can provide your bank a comprehensive forgiveness package and most importantly maximize your loan forgiveness. It is important to note that we still await final PPP regulations and guidance from the SBA and there are quite a few questions looming around the mechanics of calculating your forgiveness.

Ultimately, the amount of eligible forgiveness will depend on two primary items:

1) Your spend over the eight-week coverage period (commencing on the date funds are received) and

2) The level that you can restore your full-time equivalent headcount after the eight-week spend or ultimately by June 30, 2020.

Since the program was developed to bring back the workforce, the requirement to be eligible for any forgiveness is that you spend 75% during the eight weeks on “payroll costs”. Other eligible forgiveness costs include rent, mortgage interest, and utilities, but cannot exceed 25% during the eight weeks. Any remaining amounts after the eight weeks can be paid back or termed out over the next two years at the low interest rate of 1%.

As you track and accumulate your support it is important to note that the requisite 75% spend on “Payroll costs” includes the following:

  • Salaries, wages, commissions, bonuses, and severance (as long as not deemed “back pay”)
  • Employer health care benefits paid
  • Employer paid retirement benefits
  • State and local employer paid taxes

It should also be noted that eligible “non-payroll costs” (max 25% spend to qualify for forgiveness) include the following:

  • Interest on mortgage obligations (obligation must have been in place before February 15, 2020)
  • Rent, under lease agreement in force before February 15, 2020
  • Utilities, for which service began before February 15, 2020

Develop a Plan- Perhaps one of the most important initial steps is to develop your employee workforce plan. How can you maximize payroll costs? What is your re-hire plan or plan to bring your work staff salaries back to pre-pandemic levels. Review your pre-pandemic payroll by employee and forecast your projected costs and pay that will be expended. This will help you plan the other “non-payroll costs” eligible expenditures without running afoul of the 75%/25% requirement.

Receipt of PPP Loan – Record the loan as a long-term liability since it is payable over a 2-year period.  Debit cash (or repository account) and Credit long term liability account (Title it “PPP Loan”)

Tracking – Use the approach that works best for you, but know that ultimately your bank may have their own forgiveness spreadsheet and/or require your lead sheet schedule to identify and support every dollar spent.

  • New bank account approach – there is no requirement to set-up a separate bank account to track, but some businesses prefer this as it keeps their tracking and support clean. Having a separate account makes the process easier to support in that you know exactly your spend and what is left over after the 8 week spend period.

Note– we recommend that you check with your bank to see if they have a preference as some prefer that you not set-up a separate account.

  • Transfers approach– consider keeping the proceeds in your business savings account and transferring funds into your checking/operating account and/or payroll accounts as you spend the funds. Important to earmark and maintain support for each transfer.
  • Accounting software considerations- we recommend tracking within your accounting software a separate class, division, or department so that you can easily print or export the entire spend. If you maintain QuickBooks we have included some additional recommendations/tips below.
    • QuickBooks – Instead of an actual new bank account (as mentioned above), consider creating a sub account to your bank account and call it “PPP Loan Proceeds”. Then apply the payroll, rent, etc. to this sub bank account instead of the parent bank account.
    • QuickBooks – Multiple accounts – If you have a separate bank account for payroll, then transfer the exact amount per week from the operating account to the payroll account to account for the expense use from the PPP loan proceeds.
    • QuickBooks – consider using the “class” feature to track all of the transactions that connect to a PPP loan. Name a class “PPP loan” to tag the income and the spending related to the PPP loan.
      • The payroll costs, rent, utilities and mortgage interest funded with the PPP loan proceeds would be classified as “PPP loan.”
      • The PPP loan’s “cancellation of debt” income would be classified as “PPP loan.”
      • You can pull a “Profit & Loss by Class” Report to show the disbursements for the 8 weeks.

Support Documentation-After June 30, 2020 you will need to provide your bank with a comprehensive package in order to support the forgiveness calculations. Timing support and documentation for each expenditure is essential. Ensuring that you have proper cut-off and have included each day within the eight-week spend is essential.

  • Payroll costs (75% of that eight-week spend must be on ‘payroll costs’ as previously defined)
    • Make sure that your payroll schedule “runs” the maximum payroll periods within the eight weeks following the PPP loan funding to get the maximum forgiveness.
    • Document the dollar amount and the payment date with actual copies of the payroll checks or electronic payment receipts.
    • Maintain appropriate documentation that will support your calculations such as Timecards; W-4s; Payroll reports from your payroll service provider.
    • Check with your payroll provider as they may have new payroll reports tailored to the PPP payroll expense tracking and Full Time Equivalent calculations.
      • For example: ADP has two new reports tailored to the PPP tracking
        • 2020 CARES SBA PPP Head Count
        • 2020 CARES SBA PPP Monthly Payroll Cost
  • Other payroll related costs included in the payroll forgiveness
    • Employee health insurance – maintain copies of checks and electronic payment receipts to prove the dollar amounts and payment dates. Use the monthly insurance company statement/bills to document the deductibility.
    • Retirement plan contributions (401K match, DBP) – maintain copies of checks and electronic payment receipts to prove the dollar amounts and payment dates or payroll reports from the payroll service company showing the retirement plan contributions.
  • Rent, mortgage interest (not principal)
    • Gather documentation including the actual checks or electronic payment receipts to document the amounts and dates of payments.
    • Gather copies of the actual rental lease, the mortgage or bank loan statements entered before February 15, 2020
  • Utilities services (Inclusive of gas, electric, transportation utility, water & sewer, internet, telephone, business portion of cell phones). While we await final guidance, transportation utility has been interpreted to reflect fuel costs for business vehicles.
    • Gather documentation including the actual checks or electronic payment receipts to document the amounts and dates of payments and the utility service contracts entered before February 15, 2020.

PPP vs. EIDL Loans and Expenditures

Question: Can a business utilize funding from both loans?

Answer: If you are applying for both, you can accept PPP first – then decide whether or not to close on your EIDL approved loan. The application period for PPP loans runs through June 30, 2020, but the EIDL application period runs through December 2020.

The Paycheck Protection Program loan must be used for payroll (minimum of 75% of the funds received) for it to be eligible for a forgivable loan and the remaining 25% is used for different purposes (mortgage interest, rent, utilities, other services). For example, a borrower may obtain a loan from the Paycheck Protection Program and use those funds to pay for 8 weeks of payroll or employee retention.

With the EIDL fund, you may wish to dedicate the entire loan proceeds towards working capital, notes payable and accounts payable that do not duplicate the funds provided through the Paycheck Protection Program. Note, if the EIDL loan was used for payroll expenses, then the borrower must refinance the EIDL loan with the PPP loan.


Visit our COVID-19 page for more information

Contact us directly at should you have any further questions.