As of May 28, 2021, the Paycheck Protection Program has run out of funding. You can learn more about the PPP with our COVID-19 resource hub.
As businesses begin reopening and President Joe Biden’s American Rescue Plan aims to get the U.S. economy back on track, small business owners may be dealing with the surprising task of having Paycheck Protection Program (PPP) loan money to spend as COVID-19 restrictions loosen.
PPP loan borrowers still have questions about what they can spend their funding on. We wanted to quickly run through some of the frequently asked questions from the Paycheck Protection Program and what you can use funds on now.
FAQs on Spending Your Loan Amount
The Paycheck Protection Program began as part of the CARES Act, passed by Congress in March 2020 at the start of the coronavirus pandemic. Since then, lawmakers in both the House and Senate have passed legislation extending the program and adding more funding. A total of $953 billion has been allocated to the program with the Small Business Administration (SBA) offering loans until May 31, 2021.
We’re going to answer some frequently asked questions about what you can do with your PPP loan funds – especially now that restrictions are starting to loosen. Specifically, we’re going to look at three categories:
- Business Eligibility
- Spending Your PPP Funds
- Loan Forgiveness
This should hopefully cover a lot of the questions that you have about what your small business can do with PPP funds. Of course, some of this information could change if a new bill is introduced to add more money to the program, or if the Biden White House alters eligibility again. But right now, these are what we’ve been seeing as the most pressing questions from small business owners about what to do with PPP funds as their states begin to reopen.
Business Eligibility and Application
Most small businesses and nonprofits are eligible for paycheck protection program loans. In recent months, lenders have been advised by the White House to focus on minority- and women-owned small businesses to promote “equitable access.”
Q: What businesses are eligible to apply for a PPP loan?
A: SBA guidelines allow:
- certain non-profit organizations and 501(c)(6)s,
- small news organizations,
- housing cooperatives,
- veterans’ organizations,
- tribal businesses,
- self-employed individuals,
- sole proprietors,
- independent contractors,
- and small agricultural co-operatives.
Q: So, who is not eligible for PPP funding?
A: Publicly traded companies and recipients of a Shuttered Venue Operator grant from the SBA are not allowed to apply for PPP funding.
Q: If I’m eligible, what do I need to do to apply?
A: There are two major steps: identifying which loan to get and finding a lender.
Once you have found a lender to work with, they will help you with the paperwork needed for the SBA and Treasury. Biz2Credit is a verified lender and works with CPAs to ensure your application is good to go.
Spending Your PPP Funds
You can use your PPP loan to open your business and keep employees on the payroll. Since the loan program is designed to help business owners pay employees, you do not need to be as worried about immediate profits to stay in business and keep people paid.
Q: What are PPP funds?
A: A Paycheck Protection Program loan is a low-interest forgivable loan for your small business to use on payroll and other business costs.
Q: What can I use PPP funds on?
A: There are a lot of eligible expenses that qualify! The main rule is that you have to spend at least 60 percent on payroll costs and no more than 40 percent on non-payroll costs.
Q: What are payroll costs?
A: Payroll costs include wages and salary as well as any health care, insurance, or benefits.
Q: And what about non-payroll costs?
A: Non-payroll costs include payments for your business’s space along with certain expenditures and supplier costs.
Q: Anything I can’t spend my PPP loan on?
A: If you want your loan to be forgiven (see below for more on that), then yes! You should not spend your loan on unauthorized or ineligible expenses. You should not pay yourself with the proceeds of the loan (unless you are an entrepreneur or sole proprietor and you have claimed owner compensation replacement). So, you cannot pay for personal expenses or mix your personal and business accounts.
Ensuring that you spend your PPP loan on eligible and covered expenses – during the covered period – is hugely important for loan forgiveness – which is one of the big benefits of a PPP loan.
PPP Loan Forgiveness
Many PPP borrowers are eligible for loan forgiveness if they have spent the money from their loan on eligible expenses. We’ve covered loan forgiveness before, and wanted to focus on a few FAQs that are important to keep in mind as coronavirus restrictions loosen and your business begins to reopen.
Q: What makes me eligible for loan forgiveness?
A: There are three requirements to be eligible for full loan forgiveness after your covered period:
- Employee and compensation levels are maintained
- The loan proceeds are spent on payroll costs and other eligible expenses; and
- At least 60% of the proceeds are spent on payroll costs
Q: What is needed for loan forgiveness?
A: Different lenders may have different rules, but you will need an SBA Form and will need to provide payroll and non-payroll documentation that proves what you spent the loan on.
Q: Is it really important for me to save receipts for what I spent loan proceeds on?
A: Yes! To apply for loan forgiveness, you will need to have the documentation to prove it, but also the IRS, SBA, or your lender may audit your books and you do not want to be caught committing fraud.
Applying for loan forgiveness helps your business by covering eligible costs with grant money, which ensures you can reopen without debt.
What Your Business Can Do Now
As a PPP borrower, you have a forgivable loan from the federal government that helps you keep your business afloat. As vaccinations increase and states begin to reopen – like we’re already seeing in Texas and New York – the original precautions for your employees will still be important. The funding can help ensure you have proper social distancing and Personal Protective Equipment (PPE) to keep your employees safe.
There are strings attached to how you use the money (like the payroll and non-payroll costs we discussed above), but within those parameters you can still use a lot of the loan to keep your business on solid footing during reopening.
Here are some examples of what’s possible:
- PPP funds can be used to cover state and local payroll taxes that you (the employer) have to pay over the loan period.
- Back pay for employees
- However, if an employee was receiving unemployment benefits, that may complicate things
- Costs for newly hired employees
- Bonuses paid to employees, including hazard pay and commissions
- However, bonus pay is part of annual compensation which cannot exceed $100,000
- Pay off some of your mortgage interest
- Remember you cannot prepay or pay down the principal
- Pay the lease or rent payments for your business property
- Utility payments for “electricity, gas, water, transportation, telephone, or internet access
- Purchase or pay off business expenditures
- These include business software, cloud computing services, or other human resources and accounting needs that help the business function.
- Pay for property damage, vandalism, or looting costs associated with the 2020 protests
- Pay for essential goods that help your business run and purchases that were contracted before taking out the PPP loan
- Purchase PPE or any adaptive tools needed to keep your business and employees safe during the coronavirus pandemic
Remember that all of these payments must be paid or incurred during the Covered Period and paid on or before the next regular billing date.
Of course, if you decide to use the funds on ineligible expenses, you will be liable to pay that amount back with interest. However, the interest rate is a competitive 1 percent, so it may be worthwhile now to use the money on expenses you have rather than return PPP loan proceeds unused. It is important to make sure that you are in a strong financial position to repay the excess loan money over time, so make sure that you understand the financial consequences and risk of adding to potential debt. Speaking with a certified public accountant (CPA) can be a good way to gain additional information on how taking on this debt may impact your business financially in the future, particularly with regard to tax liabilities.
The Paycheck Protection Program is an achievement from Democratic and Republican lawmakers that champions small businesses on Main Street. As of April 11, 2021, 9,555,366 PPP loans have been disbursed, totaling over $755 billion to U.S. businesses. If you have not had the opportunity to apply for a first-draw or second-draw loan, the program has been extended to May 31, 2021.
As COVID-19 restrictions loosen and your business can start to reopen, it is important to continue using your PPP funds to supplement business income. Since your PPP loans are fully forgivable and tax-free, it is important to use the funds within the parameters of the loan: for eligible payroll and non-payroll expenses. That way, you can be sure that all the money from your PPP loan is spent and fully forgiven, which can help your business in the post-COVID-19 lockdown period.
As always, keep checking our blog here at Biz2Credit for more timely and useful information surrounding any other stimulus packages from the federal government as well as other small business programs in general. There is no doubt that the COVID-19 pandemic has been an incredibly challenging time for small business owners across the country, but by staying vigilant and up to date with the latest news and information, you can help ensure your business will be able to exit that pandemic on a sound and stable footing.