The Paycheck Protection Program (PPP) was a complicated process to calculate, apply and obtain a loan from an approved SBA lender. Now that most contractors that have applied for loans have received them, contractors face other challenges such as bringing back employees, determining qualifying expenses as well as tracking them and calculating the amount of loan forgiveness. This article will address these challenges and provide guidance on how to help ensure loan forgiveness.

With new loan funding in place, a contractor can now begin the process of bringing employees back to work. If the business is waiting for projects to start up, owners should still keep as many full-time employees as possible to meet the forgiveness requirements. Now is a good time to work on keeping employees busy by making sure equipment is tested, inspected and ready to be put in the field. A challenge faced by many contractors is that many workers are earning more money staying home because of enhanced unemployment benefits provided by the CARES Act, an additional $600 from the federal government on top of state unemployment. President Trump recently issued an executive order to begin issuing enhanced unemployment payments again, at a reduced rate of $300.

Properly spending and tracking loan money is critical to ensure it is 100% forgiven. To assist in the tracking of what the PPP money was used for, it is highly recommended to put the funds in a separate bank account and not combine the funds with a general account. This will ensure the ability to easily account for qualifying expenses and track the use of funds.

PPP loans can only be used for specific expenses, including the following.

Payroll costs

Qualified payroll costs include:

• Salaries/wages: Wages are capped at $100,000 annually per employee plus employee benefits. Contractor owner/employees are capped at $100,000 annually including employee benefits. Due to these individual employee limitations, tracking by individual employee is crucial. Contractors should be tracking week-to-week payments, by employee, to watch individual employee forgiveness caps, but also to monitor the overall amount of funds used.
• State and local taxes on compensation: This does not include Federal FICA or FUTA.
• Employee benefits: This includes costs associated with retirement plans, group health insurance and other items.
  A tracking spreadsheet should be used to assist in this reconciliation of payroll documents. To add in the review process, payroll should be able to be tied into Form 941 quarterly payroll reports.

Mortgage interest

PPP loans can be used to pay mortgage interest on the main business building.

Rent

If renting commercial space, a portion of the funds can be used to cover rent over the eight-week loan period. Some contractors have tried to prepay rent to use more of the PPP funds, but prepaying rent would be a non-qualified expense.

Utilities

Utilities needed to maintain business operation are also a qualified expense.

The SBA defines utilities as:

• Electricity;
• Gas;
• Water;
• Transportation (a clearer definition by the SBA of this expense is anticipated); and
• Telephone.

One last thing to note is that at least 60% of the loan must be used to cover payroll costs to be forgiven. The remaining 40% can be used to pay the above “other” costs.

Companies originally had eight weeks to spend their PPP funds on qualifying expenses. For many contractors, since projects had not started, it was especially difficult to spend 60% of their loan on payroll within the eight-week period. The spending time frame is now 24 weeks. This is a much friendlier window for contractors that were unable to start working right out of the gate.

The SBA has provided the form to complete for loan forgiveness. However, the lender is responsible for all forgiveness action and ultimately will be the entity making the determination. Even though many contractors have spent their PPP loan money and are ready to submit for forgiveness, many SBA lenders have communicated that loan forgiveness applications will not be able to be processed until fall 2020. Since the forgiveness process will be done at the lending institution level, contractors should make sure to stay in contact with their institution to confirm they have a clear understanding of their individual requirements for documentation.

At a minimum, contractors should make sure they have documentation that shows how their loan was spent. They may be required to submit payroll documentation, bank statements, account statements, tax forms, receipts and canceled checks, depending on how loan funds were spent.

Once a PPP loan has been obtained, contractors should work immediately to bring back employees, track expenses by employee and prepare to apply for loan forgiveness right away, which is a huge benefit for all businesses able to obtain this loan.