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  • Writer's pictureMonique Waggoner

So You Got PPP Funds! Now What?

Updated: May 7, 2020

For weeks we've been talking about the funding options available to small businesses, nonprofits, self-employed, contractors, and gig works under the CARES Act. Much time has been spent on calculating how much money your business can qualify for in regards to the PPP (Paycheck Protection Program) loan, but not much has been shared on what to do once you have the money in your account. While the SBA/Treasury has not released additional guidance for small businesses as of yet (5/7), there are contextual clues from guidance released for self-employed, contractor, and gig workers that can help all that are approved for the PPP prepare for the managing and forgiveness stage of the loan.

For nonprofits who are familiar with fund accounting because their donors have specific requirements on how you can spend their donation, you've probably got this in the bag. For those who aren't used to this, welcome to the club! As a bookkeeper and a nonprofit professional who spent most of her career in programs and a woman who LOVES creating Excel spreadsheets, this is my wheelhouse.

Below we're going to refresh on what the loan can be used for, breakdown how to track usage, how to calculate how much can be forgiven (it's different than the way you determined your loan qualification amount), what documentation you'll most likely need, and how to record it in Quickbooks Online (if you have a different accounting system, it's going to be the same or a similar process).

Remind me, what can the PPP be used for and can it all be forgiven?

Funds from the PPP can be used for payroll costs, interest on mortgage payments, utilities, interest payments on any other debt obligations that were incurred before February 15th, and refinancing an SBA EIDL loan. The maximum amount eligible for forgiveness is the full loan amount plus accrued interest. Loan forgiveness is calculated based on the amount spent on qualifying expenses during the eight-week period. Qualifying expenses include:

  • “Payroll costs” including salary, wages, and commissions (up to a maximum annualized amount of $100,000 per employee/owner compensation), group healthcare benefits, medical or sick leave, retirement benefits, and state or local taxes assessed on the compensation of employees. Payroll costs should also include severance pay and bonuses, subject to further SBA guidance.

  • Interest on mortgage obligations (for mortgages originated prior to February 15, 2020)

  • Rent under a lease agreement (for leases in place prior to February 15, 2020)

  • Utilities (electricity, gas, water, transportation, telephone, and/or internet – placed in service prior to February 15, 2020).

Note: While you can used PPP funds on interest payments for debt obligations, as indicated above, the amount used for that purpose will not be forgiven. Home expenses, including a home office, does not count for purposes of the PPP.

Considerations for forgiveness:

  • At least 75% of the loan has to be used for payroll costs (including owner compensation)

  • If you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annually in 2019, your loan forgiveness will be reduced.

  • Loan forgiveness will be reduced if you decrease your full-time headcount. You have until June 30, 2020 to restore your full-time employment and salary levels for any changes made between February 15th and April 26th. Businesses are discovering that some employees are making more under the current heightened levels of unemployment aid than they formerly earned. On May 3rd, the Treasury answered a question that has been asked a lot: "Will a borrower’s PPP loan forgiveness amount be reduced if the borrower laid off an employee, offered to rehire the same employee, but the employee declined the offer?" The interim final rule says if a laid-off employee declines an offer to resume his/her job, it will not lower the forgiven amount of a Paycheck Protection Program (PPP) loan. The amount the business qualifies for is based on the borrower making a good faith, written offer of rehire, and the employee’s rejection of that offer has been documented by the borrower. Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation. Employers can report those situations to state unemployment authorities as an abuse of the system.

  • If you received an EIDL Grant, it may impact how much of the PPP is forgiven. More direction is expected to be released in the coming weeks.

Tracking usage of loan and calculating forgiveness

First, don't open a separate bank account or special account categories in your accounting system to keep track of this money. You're gonna create unnecessary work for yourself! The biggest thing that is going to catch people off guard is that the forgiveness will be based on 8 weeks, not 2 months (the loan amounts were generated based on 2.5 months of payroll expenses).

The SBA and Treasury clarified in the second interim final rule released for sole proprietors, contract, and gig workers how forgiveness would be calculated (8/52) for this group of businesses. Though the SBA/Treasury stated they will be issuing additional guidance on loan forgiveness (at the time of this blog on 4/28 that guidance has not been released), I believe the same calculation will be used across all businesses. Waggoner Professional Services has created an Excel spreadsheet to track how the loan has been used and to help calculate the amount that will most likely be forgiven. To receive a copy, use the contact section at the bottom of this page to request the PPP Loan Usage and Forgiven Sample and Template document. We've included sample screenshots for the two templates (with and without employees) below. Since some employees are based on salary and others are hourly (and thus can change from week to week), we've broken down week 1-8 on the "With Employees" template.

PPP Loan Usage Calculation Sample - Without Employees

PPP Loan Usage Calculation Sample - With Employees and Owner Compensation Replacement


The documentation for loan forgiveness is pretty straight forward. You will need much of the same documentation you used to request funding (Form 941's for the 8 week period, benefits) that will verify the number of full-time employees and pay rates and bill, invoices, or statements for utilities, rent, and mortgage interest (if applicable). For self-employed, contractors and gig workers, the lender already has your 2019 Schedule C (which will be used to calculate your forgiveness) so the only documentation will be if you have utilities, rent or business mortgage interest.

Recording PPP loan and EIDL loan/grant and forgiveness in accounting system

As a bookkeeper, I record these funds using Quickbooks Online for my clients, many who have not taking out a business loan before nor had them forgiven. Here is how it should be set up in your accounting system:

PPP Loan (when you receive the funds) - Set-up an account in the chart of accounts: Account name: PPP Loan Payable Account type: Long Term Liabilities Record amount received to this account (bank deposit)

PPP Loan Forgiveness (only once the loan is actually forgiven by the bank) - Set-up an account in the chart of accounts: Account name: PPP Loan Forgiveness (Nontaxable)* Account type: Other Income* Create a journal entry to document amount forgiven. Debit: PPP Loan Payable Credit: PPP Loan Forgiveness (Nontaxable)

*You want to add "(Nontaxable)" to the PPP Loan Forgiveness, because this is nontaxable for revenue purposes on your 2020 Tax Return. By placing it in "Other Income", it separates these funds on the Profit & Loss (P&L) Report.

Bonus: Did you also receive an EIDL Grant and/or Loan? Here is how you would record those as well: EIDL Forgivable Grant - Set-up an account in the chart of accounts: Account name: EIDL Forgiven Advance (Nontaxable) Account type: Other Income Record amount received to this account (bank deposit)

EIDL Loan - Set-up an account in the chart of accounts: Account name: EIDL Note Payable Account type: Long Term Liabilities Record amount received to this account (bank deposit)

How to request loan forgiveness?

PPP loan forgiveness is not automatic - be sure you apply for it. The SBA is expected to release more information on this process in the coming weeks, including a form for requesting loan forgiveness from your lender. The request will need to be initiated by the business and will need to include documents that verify the number of full-time employees and pay rates, as well as the payments on eligible mortgage, lease and utility obligations. The lenders will not need to conduct any verification if the business submits the supporting documentation and certify that the documents are true and that the funds were used on qualifying expenses. The lender must make a decision on forgiveness within 60 days.

When does the business need to start paying interest on the PPP loan?

All payments are deferred for 6 months, however, interest will continue to accrue over this period at 1.00% fixed rate, using the daily simple interest method, from the day it is received. It is expected that given that the loan must be used for the 8 weeks immediately following the funds being deposited into the business account and the lender having 60 days to determine forgiveness from the time the request is submitted that all forgivable amounts should be settled by the time the first payment is due. If you are getting close to the 6-month mark and the forgiveness hasn't been determined, it's recommended that you have a plan in place to make those payments until the forgiveness is applied.

If the full loan amount isn't forgiven, how long do I have to pay the loan off and can I pay it off early?

The loan is for 2 years. There are no prepayment penalties or fees. For many businesses, the loan amount was automatically calculated and requested based on a formula and documentation you had to submit when applying. Given the guidelines, you may already know that the full loan won't be forgiven. Since the loan is accruing interest from day one, you may consider paying that non-forgivable portion back ASAP if you don't plan to use it and don't want to pay interest on that amount.

What happens if PPP loan funds are misused? If you use PPP funds for unauthorized purposes, SBA will direct you to repay those amounts. If you knowingly use the funds for unauthorized purposes, you will be subject to additional liability such as charges for fraud. If one of your shareholders, members, or partners uses PPP funds for unauthorized purposes, SBA will have recourse against the shareholder, member, or partner for the unauthorized use.

Overwhelmed? Need a little support?

Let's talk! Use the contact form below to reach out and let us know what you're struggling with right now. We'd love to help support you by talking through the areas you're struggling with currently and suggest options that are right for your organization. Or maybe, all of this has made it clear that you need more back-end support in the way of bookkeeping. Waggoner Professional Services provides set-up support, clean-up and monthly bookkeeping services on retainer for small businesses, nonprofits, and membership-based organizations.

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