What to Know About PPP Loans for Small Businesses

PPP loans are loans from the Paycheck Protection Program, designed to keep as many people as possible during the COVID pandemic. The coronavirus stimulus package included specific guidance on how to use the PPP loan funds, along with the criteria on how to qualify for loan forgiveness.

When you receive a PPP loan, you must use that money to cover your payroll expenses for eight weeks after the money is first paid out. This allows you to keep your employees on the payroll while your business may be shut down or have reduced staffing. Your PPP loan pays for your business’s payroll for two months.

If you want the loan to be forgiven, you must use the funds for payroll instead of other capital ventures. If you do use the funds for capital ventures, you will have to repay them. An employer might offer to rehire an employee who was laid off in some cases, and that employee might decline. As long as the employer extends the offer, they will not be penalized, and they may still receive full forgiveness of the loan.

Many business owners ask about whether they can be flexible about the eight weeks of covered payroll. For example, if an employee worked for eight weeks prior to the funds being granted, can the business owner retroactively pay their wages for that time period?

The loans are very clear: no. You must cover your employee payroll from the date that you receive the funds until eight weeks have gone by.

If you want to apply for loan forgiveness, you will need to do extensive documentation of how you used the PPP funds to manage your payroll. According to the guidelines in the coronavirus stimulus package, your forgiveness application must include these documents:

• Your IRS payroll tax filings
• Your unemployment, payroll, and state income tax filings
• Documentation of the funds being used for payroll or used to cover essential expenses like utility payments and lease payments
• Any additional documents that the SBA administrator needs to see

The most important thing is to be dutiful and thorough about tracking and documenting the loans.