Most small business owners are aware of the Paycheck Protection Program (PPP Loan) but are unaware of in depth details of the loan and how to spend those funds. This article will provide reasons to apply for the loan, how to spend the funds, and how to be forgiven for those funds.
What is the Paycheck Protection Program?
The PPP Loan was created to give relief to small business because of the COVID-19 pandemic. The U.S. federal government signed the CARES Act on March 27, 2020 which is a $350 billion program designed for cash-flow assistance for small businesses for eight weeks. It is intended to to keep employees on payroll.
How to spend your PPP Funds.
In order to be forgiven for the loan, funds can only be used for four purposes: mortgage interest, rent/lease, utilities, and payroll. 75% of your loan must be spent on payroll and the remaining 25% must be spend on mortage interest, rent/lease, and utilities.
Once you have been approved for the PPP loan, there are some things to consider:
- Set up a business bank account. All small business owners should have a separate bank account to track business expenses. This prevents issues from the IRS and helps you stay compliant. This will also help keep track of your PPP loan funds.
- Doing your bookkeeping. Small businesses need to spend the funds on the right things in order to be forgiven for the loan. Doing your bookkeeping will make it easy to show your lender those expenses. Showing a bank statement alone will not suffice.
Here at Mazuma, we have unlimited support and resources to assist your small business. We are here to help with any of your questions about the PPP loan, accounting, bookkeeping or taxes. We help you stay compliant, stay organized and save on taxes. Click here for a free consultation.
PPP Loan FAQ’s
Can I pay myself with the PPP funds?
- No, owner of the business cannot use the funds to pay themselves.
Can I use the funds on a new employee?
- Yes, as long as the payment is within the eight-week period.
How long can I use my PPP Loan?
- You must use the loan within an eight-week time period.
Can the loan be used to give bonuses or raises?
- Yes, within reason. A bonus or raise could be used as an incentive to help staff stay long-term.
Can I apply for the loan if I collect unemployment?
- If you are collecting unemployment, you cannot apply for the PPP loan. You must withdraw from unemployment in order to apply for the PPP loan, you cannot receive both.
How much of the loan is still available?
- As of May 2020, there is still $120 billion funding remaining.
Ben Sutton is the founder of Mazuma USA, an accounting firm providing tax, bookkeeping and payroll services to small businesses. Since founding Mazuma, Ben has established himself as an expert in the small business world. He’s still driven by that same desire to provide accounting help to all small businesses – from photographers, bloggers and creatives to lawyers, doctors, and dentists, everyone needs affordable accounting help. Ben is a Certified Public Accountant, and a member of the American Institute of Certified Public Accountants. But Ben considers his greatest achievement and credential to be his happy wife and four children.