A Small Business Owner’s Guide to PPP Loan Forgiveness

May 13, 2020

As the lockdown continues, each day is a new challenge and a new struggle. Local, state, and federal government agencies continue to roll out different relief programs to guide the small business community and hopefully ease the burden for small business owners. However, with the circumstances evolving every day, it’s hard to keep up with the headlines.

There are also many different COVID-19 relief options to consider and keep track of. There is the Economic Injury Disaster Loan (EIDL) Emergency Advance, then the SBA Express Bridge Loans, then Paycheck Protection Program (PPP), and so on.

To clear up some confusion related to the Paycheck Protection Program, we invited Victor Garrido, CPA, EA for one of our Mindshare Monday’s episode where he talked about the loan details and the loan forgiveness process, specifically.

The PPP Rundown

According to the SBA, the Paycheck Protection Program (PPP) is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll.

Any small business that applies and is approved will have eight weeks to utilize the loan for the qualifying expenses of payroll, rent, mortgage interest and utilities.

For information on the loan requirements and eligibility, visit the SBA website here.

PPP Loan Forgiveness

This PPP loan is a precious lifeline for small businesses, as it has fewer requirements, features a streamlines application and most importantly, it can be forgiven if the borrower has kept clean records of the full use of the loan and adheres to the loan terms and requirements.

So, what are the requirements?

As Mr. Garrido explained during the episode, these are the following terms:

  • Spend the funds in 8 weeks after the disbursement in your bank account
  • Spend at least 75% of the funds in payroll cost– it is recommended that you cover at least 80% to 85% to ensure the loan forgiveness
  • Keep the same number or more for Full Time Employees (FTE) to the base period– otherwise, there will be a reduction
  • Do not reduce the employee salary more than 75% from previous quarter– otherwise, there will be a reduction

It is important that small business owners strictly adhere to the terms of the forgiveness. Otherwise, there could be legal consequences afterwards. Steven Mnuchin, the current Secretary of the Treasury has confirmed that loans over $2M will be audited but potential random audits should also be expected for lower amount in addition to the lender review.

To avoid legal issues related to federal fraud and to ensure maximum loan forgiveness, Mr. Garrido recommends that you…

  • Keep clear and self-explanatory records
  • Designate an official account for the funds (no need to have separate accounts but it might help)
  • Track the expenses with an accounting software where the funds can have its own account, subaccounts, and/or classes
  • Forecast in Excel or a similar application

For a detailed guide, watch the episode’s recording here and access any Mindshare Monday presentations here.


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