PPP Funds – How to Keep them Forgivable

Choosing to Keep the PPP Funds Forgivable

In order to do so, you’ll need to begin tracking, and categorizing, every expense. A simple bank and credit card statement likely won’t be enough for your lender.

In order to get your loan forgiven, you’ll need to not only spend the PPP funds on the right things, but also prove these expenses to your lender.

An organized collection of documentation proving your expenses will make processing your claim faster and reduce the chance of a rejection.

Record keeping involves noting:

  • The amount you spent
  • What you spent it on
  • The date
  • The purpose

You’ll also need to keep track of the receipt/invoice/official record of payment.

Bookkeeping and Record keeping

Getting your PPP loan forgiven boils down to two things: spending your funds on the right things, and proving your PPP expenses.

The funds from the PPP can be used for the following purposes:

  • Payroll—salary, wage, vacation, parental, family, medical, or sick leave, health benefits
  • Mortgage interest—as long as the mortgage was signed before February 15, 2020
  • Rent—as long as the lease agreement was in effect before February 15, 2020
  • Utilities—as long as service began before February 15, 2020

All expenses that fall under those categories are eligible for forgiveness. Any spending outside of those areas won’t be eligible for forgiveness.

Proving your expenses

However, in addition to spending your PPP funds on the right things, you also need to prove your expenses.

After the eight weeks: applying for loan forgiveness

Applications for loan forgiveness will be processed by your lender. They’ll provide you with instructions on where to apply

After you submit your application for forgiveness, your lender is required by law to provide you with a response within 60 days.

Spending on the right things

These are the required documents you will need to collect to provide with your PPP forgiveness application. Your lender may have additional requirements.

  • Documents verifying the number of full-time equivalent employees on payroll and their pay rates, for the periods used to verify you met the staffing and pay requirements:
    • Payroll reports from your payroll provider
    • Payroll tax filings (Form 941)
    • Income, payroll, and unemployment insurance filings from your state
    • Documents verifying any retirement and health insurance contributions
  • Documents verifying your eligible interest, rent, and utility payments (canceled checks, payment receipts, account statements)

If you’re a sole proprietor, you can have eight weeks of the loan forgiven as a replacement for lost profit. But you’ll need to provide documentation for the remaining two weeks worth of cash flow, proving you spent it on mortgage interest, rent, lease, and utility payments.

Good record keeping and bookkeeping will be critical for getting your loan forgiven—you’ll need to keep track of eligible expenses and their accompanying documentation over the eight weeks. Your lender will likely require these documents in digital format, so take the time to scan any paper documents and keep backups of your digital records.

What happens if I’m not approved for forgiveness?

Your lender may allow you to provide additional documentation so they can reevaluate your request.

Otherwise, your outstanding balance will continue to accrue interest at 1%, for the remainder of the 2-year period.

There is no prepayment penalty. You can pay off the outstanding balance at any time with no additional fees.

Additional information

Can I get PPP expenses forgiven and deduct them from my taxes?

No. Any expenses that you claim for forgiveness under the PPP cannot then be deducted from your expenses. A forgivable PPP loan is already tax-free, so the IRS wants to prevent double-dipping (getting free money from the same source twice).

Can I prepay my rent or mortgage?

No, prepayment is not an allowed use of the PPP and is not eligible for forgiveness.

What counts as mortgage interest?

Any interest paid on mortgage on property used for business purposes is an eligible expense that the PPP can be used for, and qualifies for forgiveness.

Acceptable examples include:

  • Mortgage interest on a warehouse you own to store business equipment
  • Auto loan interest on a car you own to make business deliveries
This post is to be used for informational purposes only.

Steven Z. Freeman, CPA and the staff at Freeman and Associates provides Business Services, Tax Planning, Entity Formation plus Maintenance, and Accounting Services and can assist you with these services. If you have any questions on this matter, or to schedule an initial consultation,

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