3 Potential Strategies for the Paycheck Protection Program (PPP)

1. Use for payroll and take advantage of Forgiveness Program

The goal of the Payroll Protection Program (PPP) is to allow businesses and their employees to weather this storm.  The forgiveness provisions all relate to continuing employee payroll, and allowing businesses to pay rent/mortgages/utilities.  This forgiveness program is not designed to help businesses buy new equipment or pay off existing debt. 

2. Obtain loan to take advantage of low interest rate, but forego Forgiveness Program

Even without forgiveness available for certain spending, businesses may still decide that the use of PPP loan funds to buy equipment, pay off debt, or put in the bank is a wise move. While the applicant needs to intend to use the funds for payroll/rent, a business that finds itself with excess funds can use the funds for non-forgivable purposes. The PPP loans carry a one-percent interest rate, and payments are deferred for 6 months.  If a business doesn’t want to partake in PPP it can still get a loan, but such loan through the SBA’s Disaster Loan Program.  Businesses may also obtain a loan on reasonable terms to make capital improvements in the company, such as to buy equipment, pay off debt, or to build up cash reserves.

3. Forego PPP Loan and maintain eligibility for certain tax credits

Businesses that choose to forego both the PPP loan and the Disaster Recovery Loan may have the opportunity to reap certain tax credits at a later date.

Strategies for compliance and maintaining forgiveness eligibility for the PPP Loan

After the funds have been received and are being used for a forgivable purpose, businesses will need to proactively request forgiveness from their lending financial institution.  In order to receive forgiveness, businesses will need to show proof of how the funds were spent. 

Businesses should keep an organized filing system and documentation for all  pay stubs, invoices, and proof of payment for rent/mortgages/utilities. 

In order to ensure the business has the greatest opportunity to have the PPP loan forgiven, it is advised and suggested that they place these funds in a  separate checking account from their typical daily operating account.  This will allow for a more straightforward money trail, as well as prevent the need to disclose bank statements that show all of a business’ spending, rather than simply the spending that relates to the PPP loan and forgivable spending. 

Finally, please keep in mind that there is a limit on how much of the PPP can be used for Rent, mortgage, and utilities.  That amount is 25% of the total loan amount.