Friday night, May 15, 2020, the SBA quietly issued it's Loan Forgiveness Application for businesses who received a Paycheck Protection Program Loan (PPP Loan), and I'm going to give it to you straight: it's ugly. Maybe I was naive to think it wouldn't be. When I looked at the guidelines, it made me feel like I was in math class, and I forgot that there would be an exam, and here it was sitting on my desk.
It made me feel that way because of how unsettling it is to know that a lot of these details were not published and available to businesses and borrowers on the outset. There is that feeling of not being prepared to do these calculations because we didn't have all the formulas. The other reason is because of the nuances of calculations.
If you received a PPP loan and if the prospect of loan forgiveness was a big reason you opted to apply for one, it's a good idea to start thinking about your loan forgiveness application.
You can do a lot of the leg work by gathering the financial figures and reports so that when you are ready to complete the application yourself or with the help of a bookkeeper or accountant, you'll have all of the data already. And hopefully, it'll help you feel a bit more prepared.
Step 1: Keep a document with your loan details
You'll want to start a document that you'll reference. Did you ever have a teacher who allowed you to bring in one page of notes into an exam? This document is your one-page of notes. I suggest using a spreadsheet, but I live in spreadsheets, so that's where I'm comfortable. I have lots of friends who are wizards at creating tables within word-processing apps like Pages, Word, or Notes.
In your loan details doc, you'll want to make a note of the following questions and answers:
What was the date you received the funds?
How much did you receive?
How much is 75% of the funds?
How much is the remaining 25% of the funds?
Step 2: Gather your payroll expense details
The payroll service providers, Gusto and ADP, have payroll reports that can help you see your payroll expenses relative to your PPP loan. You enter your answers from the question above (when your loan funds were received and how much you received), and the report will tell you if you are on track to hit the 75% threshold required for forgiveness. I would imagine any payroll service worth their monthly cost would be doing the same.
If you have an accountant or bookkeeper who manages your payroll, chances are, they've been checking this report for you, but you should ask them. Even though you have financial professionals you hire to help you, remember, your business is ultimately your responsibility.
Make sure you're looking at that report often (weekly or every other week) to make sure you are on track. It's also important to look at it frequently because the rules are often changing, which means you might fall off track because of a calculation change. I know - this sucks, but it is what it is, and you have to be vigilant.
I recommend keeping track of your weekly (or bi-weekly) payroll costs in your loan details document. Again, it will just make it easier when it comes time for you, your accountant or bookkeeper to complete your forgiveness application.
Don't forget to include and list out the weekly costs for any employer-paid employee benefits. These are things like health insurance, dental, life, disability, any retirement contributions (pension, matches, or profit-sharing), state unemployment taxes, and any other benefits you might offer.
Step 3: Gather your non-payroll, eligible expenses.
In your loan details document, it's a good idea to provide the total amount your business spent over the 8-week period in eligible non-payroll expenses.
Eligible non-payroll expenses include the following:
Interest paid on secured business debt;
Rent payments on real or personal property;
Utilities paid for a business property like electric, gas or propane, water and sewer, telephone, cell phone, internet, transportation, and other utilities.
You may also want to keep copies of or the actual invoices, bills or records of payments for these expenses in the rare instance that you need proof of these costs. You might already have a system for keeping these records, if you don't, now is an excellent time to start. There are lots of different ways to keep these records. I've seen people who upload everything into monthly folders, I've seen folks who use apps like Expensify, and when I first started in the bookkeeping business, we kept physical copies of everything in folders - wow, that makes me feel old. Choose a method that works for you so that you can build the habit of going forward. Hereโs the method that I use after I failed at keeping my own receipts for many years.
Step 4: Enlist the help of your accountant and bookkeeper.
It's hard to navigate the CARES Act and the continually changing laws on your own, even in normal times. Remember that you're navigating the intersection of legal language and math, two subjects that can be challenging if you don't regularly swim in those waters.
If you're struggling with getting prepared for applying for loan forgiveness, now is the time to get the guidance and help from your accountants, bookkeepers and other financial professionals.
If youโve already got a bookkeeper, getting all this data together should be relatively painless, easy and quick.