Posted on April 17, 2020 in

Tracking the Use of Your PPP Loan

The Payroll Protection Program (PPP) became available for self-employed individuals and sub-contractors on April 10th. However, recent amendments have been made in regards to application and qualification. These changes come in a line of updates to the program since its launch in March. The Small Business Association PPP is now on its second round of funding, and 1099 individuals are still urged to  apply for the PPP loan.

Lenders required small businesses to submit their 2019 tax returns along with other key payroll data as part of the original approval process for PPP funds. Form 1099 individuals will need to also submit their 2019 tax return, but specifically, Schedule C, to show profit and loss for the company. Other sources of income may be required for gig work, etc.

Unlike small businesses that typically keep track of payroll each pay period and file taxes timely, people paid via Form 1099 may not be calculating this information until tax time. Getting your finances in order before visiting with your lender is most important to ensure you receive the appropriate level of funding to keep your business alive. Separate guidance exists for businesses created in 2020. Read the FAQs here.

Another problem self-employed individuals face is that their business income typically becomes co-mingled with their personal checking/savings. This creates quite a problem for lenders to verify income and revenue sources specifically for the business. It is best to keep business income separate under the business name. When receiving PPP funds, this would be another great reason to start tracking it properly.

But How Do I Track the PPP Funds?
One way is to create a separate bank account dedicated for the PPP loan. This account is used for the sole purpose of reimbursing the appropriate covered cost over the 8-week period.

For Example:
Let’s say you receive a PPP loan of $10,000. You decide to set up a separate bank account and corresponding general ledger accounts to hold these funds. The 8 weeks pass and during that time you have been incurring the following qualifying expenses and drawing from the PPP bank account to pay for the following:

$ 8,500 – Payroll Cost *
$ 1,000 – Covered Rent **
$ 500 – Covered Utilities **
= $10,000

After the 8 weeks the PPP bank balance is now $0.00. Perform a bank reconciliation at the end of the 8th week and tie your general ledger account to the bank statement. We’ve provided a  useful spreadsheet below to do just this. In this example, bring the following to your lender to apply for loan forgiveness:

(A) PPP loan bank reconciliation
(B) PPP loan bank statements
(C) Payroll registers/reports that tie to the $8,500
(D) Copies of covered rent payments that tie to $1,000
(E) Copies of covered utility invoices that tie to $500
(F) List of employees and compensation levels over the 8-week period.
(G) Lease agreement in place before February 15th 2020.

The CPS Team is available to anyone with questions or needing assistance. Let us know how we can help you: info@cpsinvest.com 

* Covered payroll costs are capped at $100,000 per employee on an annual basis.
** For services and lease agreements in force before February 15th, 2020.

Note: In this example, rent and utilities combined are less than the non-payroll cost limit of 25%.
Note: Different lenders may require different/additional reports for loan forgiveness.
Note: Note: This spreadsheet is a free tool for small businesses and Form 1099 individuals. Be sure to check with your accounting department or CPA for any changes needed to best suite your business.”

Derek M Oxford | CFP®️ | AEP®️
Financial Advisor

Download the spreadsheet: PPP Reconciliation Schedule