5 Tips for Maximizing Your PPP Loan Forgiveness

Beyond the easy application process and low-interest rate, “Loan Forgiveness” is one of the most attractive features of the Paycheck Protection Program (PPP) loans. Amid the COVID-19 outbreak, many of you have received PPP funds in your bank account. But if you’re not among one of those fortunate small business owners, the second round will hopefully be your opportunity.

Last week, the Senate has passed a new $484 billion coronavirus relief package, including $310 billion for PPP loans. As the Small Business Administration has started accepting applications again, it’s the right time to start planning how you’re going to maximize your PPP loan forgiveness.

Conditions of the Paycheck Protection Program

• The maximum loan amount under PPP loans can be 2.5 times the average monthly payroll costs, to help cover eight weeks of payroll.
• At least 75% of your loan must be used for payroll costs.
• Must maintain the number of employees on your payroll.
• Should keep up your payroll, or rehire the workers you laid off during the starting weeks of the COVID19 by June 30.
• Must maintain at least 75% of the total salary.

If you’re unfamiliar with the PPP loan and know how you can apply for one, please refer to our prior article here.

Though the grant from the federal government has been a source of hope for millions of businesses over the past few weeks, there is a lot of confusion about the PPP loan program, particularly about how forgiveness will work. As many factors can affect your loan forgiveness, it’s vital to accentuate the details of loan forgiveness. From setting up successful documentation to using the funds to making appropriate loan expenditures, here are the top 5 tips to ensure PPP loan forgiveness.

Review Eligible Expenses

PPP loans are available to cover up to eight weeks of average monthly payroll, starting right from the day you get money from your lender. For your loan to be forgiven, you must spend at least 75% specifically on payroll. While the rest 25% of the excused sum can be spent for non-payroll costs such as mortgage interest, lease, and utilities (if applicable). If possible, use all the funds on the payroll. If you use funds for any unauthorized purposes, the SBA will direct you to repay that amount.

The chances of your loan forgiveness will increase, assuming that you have as many or more full-time employees now as there were in the previous year, (or January 01 through February 15 of 2020, at your discretion).

Also, separate the employees who are paid more than $100k annually during the eight weeks. It will help maximize loan forgiveness as qualified payroll is limited to that amount per employee.

Keep PPP Funds Separate

To maximize your PPP loan forgiveness, keep your funds and transactions organized. Since 75% of your total loan funds should be used on payroll related expenses covered by the Act, establishing separate ledger accounts will help you track the funds precisely.

A distinct record lets you effectively show that your business utilized PPP assets for the eligible expenses. A separate account will not only help simplify your PPP loan forgiveness but give you peace of mind that you’re on the right path for your business and money.

Track and Document all of your Spending

During the 8 weeks after your credit is dispensed, keep a track of every PPP penny you are spending. To ensure loan forgiveness, make sure you keep track of the forgivable expenses to get an idea of how much of your loan is eligible for forgiveness.

Besides that, to prove to your lender that you spent your PPP loan appropriately, you need to document all your loan expenses. Keep all the documentation in regards to how the funds are spent including invoices, payroll reports, payroll tax filings, installment receipts, finance reports, employee health insurance, transcripts of records, and so on. Likewise, gather confirmation of payments for your qualifying non-payroll expenses, like rent, mortgage, interest, utility payments, owner compensation, and so on.

Use an Accounting Software

Another great way to maximize your PPP loan forgiveness is by utilizing an accounting software. You can use a separate expense account to record loan forgiveness expenses. Before adding any accounting software to your business arsenal, make sure it’s capable of tracking the PPP loan information. Even if you have no plan to get a PPP loan, accounting software can help you effectively manage and monitor your business.

Get a Payroll Service

Under this program, the SBA will pardon the part of the loan utilized for payroll costs for as long as about 8 weeks. If you don’t already have a payroll system, this is the right time to get one. Having a good payroll service at your disposal can help you to work out payroll calculations and deductions quicker. A payroll system will give you a super easy way, not only during 8 weeks of PPP loan coverage but in the long term too, to calculate and manage bonuses, expenses, holidays of your employees.

Submit your PPP Loan Application

If you are struggling to get a PPP loan for your small business, use an online lending marketplace. Wipeout any confusion or misinformation about the PPP by utilizing an online lending marketplace.

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