The Paycheck Protection Program (PPP) was part of a federal stimulus bill signed in May of 2020 in response to the COVID-19 “coronavirus” pandemic. As shelter-in-place and related injunctions were put into effect across the country, the U.S. federal government stepped in to provide financial relief for businesses in order to offset the economic impact of the lockdown.

For many small businesses—and maybe most of all, their employees—the stimulus plan was a Godsend. The Paycheck Protection Program allowed businesses to continue paying their employees when they otherwise would not have been able to.

But there’s a second part of the PPP loan that is a huge benefit for businesses: you don’t have to pay it back—IF you meet certain requirements.

What are those requirements, you ask? Well, we’re glad you brought it up.

Loan-Forgiveness Requirement #1: Spend Your PPP Money the Right Way

The Paycheck Protection Program is not a ‘blank check lottery program.’ If you’re going to qualify for loan forgiveness, you have to spend your PPP funds within the allotted timeframe—which, as of June 6th, 2020, is 24 weeks from the time you receive your loan—and you’ll have to spend it on the right things.

Keep in mind that loan forgiveness is proportionally reduced if you’re not at pre-COVID full-staff levels by December 31 of this year. However, if you can show you made a good faith effort to staff back up but couldn’t find workers willing to work, OR if you can show your business is not able to return to its previous level of business activity due to COVID health restrictions, you will be exempted from this proportional reduction in loan forgiveness.

That said, let’s move on to how your PPP money needs to be spent.

1) Spend at least 60% of your funds on payroll costs.*

Payroll costs include:

  • Salaries
  • Wages
  • Vacation pay
  • Parental and family leave
  • Sick leave
  • Health insurance benefits
  • Employer contributions to employee retirement plans
  • Employer state and local taxes assessed on employee compensation (e.g., state unemployment insurance tax)

*As of this writing on 6/18/20, it appears as though spending less than 60% on payroll might disqualify you from receiving any loan forgiveness at all. We’ll keep an eye on that and update this article once it’s clarified.

2) Spend the remaining 40% of funds on approved expenses.

In order for expenses to qualify as “approved” for loan-forgiveness, they must go toward expenses for which accounts or contracts were effected prior to February 15, 2020. In other words, if you pay your business’s electric bill with PPP funds, but your electricity account was set up on March 1st, those payments would not qualify for loan forgiveness.

That said, approved expenses include:

  • Mortgage interest
  • Rent or lease
  • Utilities (electricity, gas, water, transportation, telephone, or internet access)

So, let’s summarize: If you’ve spent at least 60% of your funds on payroll-related expenses, and the rest on approved expenses as outlined above, you’re well on your way to not having to pay back your PPP loan.

Loan-Forgiveness Requirement #2: Prove You Spent Your PPP Money the Right Way

It’s not enough to say you’ve spent your PPP funds on the right things over the course of the alotted 24 weeks. You have to be able to prove it. And showing up with six months’ worth of crumpled-up receipts and hand-written records on lunch napkins is probably not going to be good enough.

In other words, you need to have some best practices in place when it comes to your business accounting.

Here are 6 practical tips that will help you prove how you’ve spent your PPP money:

  1. Put the PPP funds down as a loan in your business books.
  2. Create a category or label in your financial software (such as QuickBooks® Online) or spreadsheet specifically for PPP expenses.
  3. Record all business transactions for the next 24 weeks beginning from the time you receive your PPP loan.
  4. For each transaction, record the amount spent, date, expense category, vendor/payee, and the reason for the transaction. Be sure to keep a receipt or some kind of official record as proof of the transaction.
  5. At the end of 24 weeks, total up the amount spent on forgivable category items, and apply for loan forgiveness through your lender.
  6. Once the amount of forgiveness has been confirmed by your lender, adjust that amount out of the “Loan” section of your ledger, into a “Non-Taxable Gains” ledger as other income.

What If I Don’t Receive Loan Forgiveness?

If you do not receive full forgiveness of the PPP loan, any remaining amounts should stay in the “Loan” category in your records (per above), and must be paid back at 1% interest over a 5-year period, beginning 10 months after the end your covered period.

What If I’m Self-Employed?

Many self-employed individuals are still able to qualify for the PPP loan even if they don’t have any employees. The difference, however, is that qualifying self-employed individuals receive a PPP loan based on their 2019 net profit rather than 2019 payroll records.

Furthermore, rather than having to spend 60% of PPP funds on payroll, self-employed loanees can have 24 weeks’ worth of their 2019 net profit automatically forgiven, in which case your PPP loan basically becomes a grant that replaces your profits. For the rest of your funds, simply follow the checklist above.

Can I Still Apply for a PPP Loan, or Can I Get a Second Loan?

There’s still time for first-time applications! If you’ve never applied for a PPP loan, now is the time. Contact our friends at the EDC SBDC today to find out how.

If you have already received a PPP loan, however, you cannot get a second one.

Is All of This Information Up-to-Date?

As of this writing, yes. And we’re doing our best to keep this updated as soon new information comes out. However, you can always find the latest information right from the source at

Help! I’ve received a PPP loan, but my books are a mess and I don’t want to have to pay it back!

Then you’ve come to the right website! Since you’re going to need 24 weeks of bookkeeping records for PPP loan forgiveness anyways, our ‘Sign up for 6 months and get one-month-free’ is the perfect place to start to put you on the road to financial peace of mind—and to not paying back your PPP loan.

Focus on running your business. Let us handle the books.

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