PPP Loan Best Practices and Forgiveness
Joe Park, CEO and Managing Partner at Horizons Stewardship, recently interviewed Stan Reiff, Partner and Consulting Practice Lead at CapinCrouse, a national full-service CPA and consulting firm devoted to serving churches and other nonprofit organizations whose outcomes are measured in lives changed, about best practices for Paycheck Protection Program (PPP) loan funds accountability and how to maximize your loan forgiveness. One important note to make is that many of the finer details of forgiveness have yet to be clarified by the SBA. Horizons is committed to providing you additional information as it becomes available from the SBA.
Watch the full interview.
Below is a very short summary of some of the most popular questions:
Why was PPP created, and what is its purpose?
Because of the Coronavirus outbreak and the need for social distancing, the government recognized the need to sustain businesses and specifically their ability to fund payrolls, while we weather the consequences of this pandemic.
What is a summary of the PPP loan calculation?
A loan amount equal to the average payroll multiplied by a factor of 2.5. This allows businesses, including churches and nonprofits, the ability to continue to operate during this period of interruption and to apply for loan forgiveness for all or part of the loan.
What do we know about the forgiveness right now?
The SBA has final authority for loan forgiveness, but they are still focused on getting the money out as quickly as possible to businesses in need. It’s likely the SBA will need to pass all or part of the forgiveness evaluation to banks. Thus, the banks will likely be the primary means by which forgivability is achieved. The SBA has yet to publish detailed guidelines on forgiveness.
What are the key provisions for forgiveness today?
Here are the key factors to consider:
- At least 75 percent of your loan funds must be spent on payroll and benefits as defined by the program.
- No more than 25 percent of the SBA/PPP loan can be used on occupancy/utility expenses.
- You have 8 weeks from the time you receive funding to use it towards allowable costs to stay within the forgiveness period.
When does the 8-week spending window start?
The day your funds are deposited into your account is when the “clock starts” on tracking and use.
Can the PPP loan funds be used for housing allowances?
Yes, the SBA provided clarification after the webinar was completed. For a copy of the SBA guidance and a CapinCrouse prepared summary document, please go to www.horizons.net and click on Covid19 Resources.
What loan uses will not be forgiven?
The loan proceeds can be used for legitimate business expenses but only payroll expenses (up to $8,333.33 per month per employee) and allowable rent, lease, utilities (including interest) may qualify for forgiveness.
Are payroll expenses calculated on a cash or accrual basis?
On a cash basis only. Expenses must be both incurred and paid during the 60-day window.
What are the high-level best practices for use of PPP funds?
- Transfer the funds to a separate account and keep them segregated from all other cash accounts.
- Make expenditures out of your operating account and then replenish with funds from your PPP loan funds.
- As you spend the funds appropriately, complete a reconciliation schedule with what is known today for use of funds. That will help you maintain a clear audit trail. This will give you a jump-start on the application for the forgiveness process.
- Fewer transactions from your SBA fund account to your operating budget will minimize the amount of documentation needed. Bundle and batch transitions when possible. In short, keep a copy of every step of your use of the PPP loan funds use.
In general, what are the factors that could cause you to have less than 100 percent of your PPP loan funds forgiven?
- Existing Economic Injury Disaster Loan (EIDL) receipt will be considered an advance and deducted from your total calculation.
- 75 percent of the loan proceeds must be used on payroll costs.
- Wages paid to an employee for Expanded Family Medical Leave Act or Emergency Paid Sick Leave for which you received the allowable credit under the FFCFA are not included in your payroll costs.
- Your headcount is reduced during the 60-day period.
- Salaries and wages are reduced during the 60-day period.
Next Steps:
To watch more expert interviews and webinars, please visit Giving365, a free, on-demand library of resources designed to help you make disciples and fund ministry. It won’t cost you anything, and you can download as much content as you’d like. In fact, you may even find it helpful for your finance and generosity team members to get their own account. You’ll find resources on a variety of topics—especially about how to promote online recurring giving in your church. If you’d like to talk with someone specifically to guide your church through the evaluation and adoption process, don’t hesitate to reach out. We’re ready to help!