Guidance from the SBA has been relatively spotty, but that shouldn’t deter lenders from providing PPP loans. Many businesses need them to survive—and the extra loan income can help credit unions weather this recession!
But due to unclear guidelines, borrowers and lenders have had a hard time knowing how to get PPP loan forgiveness. Without this documentation, borrowers may get stuck with the bill… and those loans will be stuck on credit union balance sheets!
Recommended PPP Documentation
To qualify for loan forgiveness, both borrowers will need to maintain good accounting documentation of their loan activities. Similarly, lenders will need this documentation to submit to the SBA. Without this documentation, borrowers will be required to repay their loans with a fixed 1% interest rate.
We want to note that this is not legal advice. These are merely recommended steps that may put borrowers and lenders in better position to achieve PPP loan forgiveness. However, this is no guarantee, and the ultimate authority on how to handle PPP loan documentation is the SBA!
That said, these are the recommended documents:
- Loan proceeds. Each business should consider creating a new general ledger cash account to track their PPP loans. It’s not necessary, but keeping loan funds separate from other balances will make everything very clear and easily demonstrable.
- Qualifying expenditures. The SBA is letting each lender determine loan forgiveness eligibility. Thus, lenders may require differing levels of detail about how each loan was used. Maintaining a detailed ledger that differentiates between payroll and non-payroll costs will ensure that loans are used and forgiven appropriately. Consider tracking:
- Payroll registers
- Health insurance invoices
- Retirement benefit contribution calculations
- Lease or rent agreements
- Mortgage invoices
- Utility statements
- Liability accounting. Paying payroll and other eligible expenses will not forgive the loan balance. Loan items on accounting books will ensure that the loan is payable until the lender offers a notice of forgiveness or when principal payments are made.
To be frank, this represents a lot of detailed accounting documentation. Tracking and maintaining all related expenditures will be crucial for small businesses seeking PPP loan forgiveness. Similarly, lenders will need to work with businesses to ensure that all of this paperwork is provided and clear.
Resources for Achieving Scale and Efficiency
Due to the volume of loan applications—and the need for a well-documented audit trail—PPP application intake is particularly difficult for lenders that process everything manually. To achieve scale and efficiency in the loan forgiveness process, automated verifications and workflows will protect both borrowers and lenders.