5 Tips for Keeping Documentation to Maximize Loan Forgiveness

5 Tips for Keeping Documentation to Maximize Loan Forgiveness

Key Insights:

If you received a PPP loan, you should be aware of the loan forgiveness requirements as you move forward with your loan.

Setting up an efficient tracking system with detailed records will allow for successful documentation.

Like many businesses, you are probably relieved your Paycheck Protection Program (PPP) funds have been received.  Now that the money is here, it is critical you keep the loan forgiveness requirements in mind as you move forward.

One of the key provisions of the Paycheck Protection Program (PPP) program is the opportunity to have most, if not all, of the loan forgiven. Much of the guidance related to forgiveness is unclear at this time; however, we know businesses must document qualifying expenses to receive forgiveness. Without proper documentation, it could be difficult for you when it comes time to apply for forgiveness. 

Five Tips To Set-up Documentation

  1. Use a simple Excel spreadsheet to track your qualifying expenses. This will allow you to see your progress in real-time and project where you will be at the end of the eight-week period. Think of an eight-week projected cash flow forecast; this discipline should give you similar visibility. To substantiate the amounts listed in the spreadsheet, gather and organize your backup documentation.
  2. Employ good third-party documentation. For example, evidence payroll costs using an outside payroll provider report, coupled with a bank statement, reflecting the payroll funds coming out of your account.
  3. Capture electronic transactions and use them as appropriate documentation, but watch that you’re treating them as you would their paper counterparts. You’ll need to have the same level of detail you’d find in a paper invoice.
  4. Gather and organize your information. As we are still unsure how the SBA wants borrowers to provide documentation, it will be much easier for you if you have an organized paper trail evidencing that PPP loan funds paid for qualified expenses already collected your data.
  5. Track expenses in the general ledger. If you are using a cloud-based accounting system, such as QuickBooks Online (QBO), set up an additional class (QBO) to record your expenses. The general ledger tracking will be a good summary, but you will still need to include the details.

How to Document Qualifying Expenses

Payroll Costs

  • If you use an outside payroll processing company, save a payroll report reflecting gross wages paid for each payroll incurred during the period.
  • If you process payroll internally, use the pages of the payroll report that reflect total gross wages paid.
  • Separate the employees (including owners taking a salary) who are paid more than $100,000 annually, or $15,385 during the eight-week period, as qualified gross payroll is limited to $100,000 per employee.
  • Collect invoices, statements, payment advices, evidence of automatic bank debits, etc., to validate and document other costs under the definition of “payroll costs” defined as:
    - Cash tips or equivalent
    - vacation, parental, family medical, or sick leave (excluding payments for emergency paid sick leave or expanded family and medical leaves) 
    - Separation or dismissal pay
    - Group health insurance
    - Retirement benefits
    - State or local payroll tax (but not federal payroll tax)
  • For state and local taxes, such as unemployment taxes, the same payroll reports as above should be adequate.
  • Keep an electronic copy of your bank statement and reconcile the amounts from payroll reports, invoices, etc., to the entries on the statement.
  • In some cases, you may want to use Federal Form 940 or 941 and summarize the actual portion of the amount on the form that was paid during the eight-week period.

Other Qualifying Expenses

  • These expenses will likely be limited to 40% of the PPP loan amount.
  • Use invoices, statements, payment advices, etc., to validate the costs for rent, utilities, and mortgage interest.
  • Copies of rent, lease, and mortgage loan agreements may be required to validate commitments that were in place prior to February 15, 2020.
  • If you have canceled checks that match the invoices, make copies to use as documentation along with the invoice.
  • Keep an electronic copy of your bank statement and reconcile the amounts from invoices, etc., to the entries on the statement.

Other Considerations

  • Employee headcount — Keep track of hours worked for hourly employees. Maintain copies of timecards or pull a report from an electronic timekeeping system. The hours should be tracked by week for the eight-week period.

    Capture any new employees hired, regardless of whether they are hourly or salaried. W-4 forms may be required as supporting documentation for the new hires.
  • Comparing wages — If you have reduced the wages for any of your employees from what they were in the period prior to February 15, 2020, you must track those changes, as they could limit the forgiveness amount. Consider using the same spreadsheet you are using to track payroll costs by week to document these changes. The reductions should be supported by a comparison of a payroll report from the period prior to February 15, 2020 and from a pay period within the eight-week period of qualifying expenses.

Following these tips should be a good start to help the forgiveness process go smoothly. Keep the documentation organized electronically in a secure location on your server so you can quickly retrieve these items to meet final loan forgiveness guidelines. The goal should be to have all the documentation at your fingertips to help make it easier for you to substantiate and maximize your loan forgiveness.