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How Your Customers Should Track Their PPP Loans

Advice Focuses On Not Being Penalized

Keith Griffin

April 21, 2020

Dollar Bill | Photo by NeONBRAND on Unsplash

The Paycheck Protection Program administered through the Small Business Administration and local banks provides relief to businesses in the form of loans that potentially turn into grants. Just like any government program, though, there are guidelines that must be followed and could trip up clients who are not diligent about how the funds are used.

A Philadelphia accountant, writing for the Philadelphia Business Journal, says it’s important for all borrowers to create a good audit trail. Borrowers who apply for forgiveness will have to provide records to their lender which show how the funds were expended,” said James Brower, a partner in the Philadelphia office of accounting and advisory firm Marks Paneth LLP.

Brower adds it’s important for borrowers to know they have eight weeks from the date the loan is funded to disburse the money. That could mean issuing payroll early if needed to fall within the guidelines.

Also, he counseled, it’s important to track the 25% that can be spent on non-payroll expenses. “[W]hile you can still pay rent, mortgage interest and utility bills, if more than 25% of the loan proceeds are spent for those purposes that excess won’t qualify for forgiveness,” Brower said.

He also said there is an additional “penalty” provision in the law which provides that if, during the payout period you have cut the pay of any individual employee by more than 25% of what they earned in the first quarter of this year, that cut in pay will result in some of the loan not qualifying for forgiveness unless the pay cut is restored by June 30.

Read more about advice for PPP loan spending.

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