PPP Loan Update:  YOU ARE APPROVED!  Now What?

Lyons Gaddis Covid-19 Alert

This Alert is one in a collection of articles created by Lyons Gaddis in our effort to get important information to our clients regarding the effect of the novel coronavirus (COVID-19) outbreak in the United States.  This Alert focuses on the new PPP Loan Program and recommendations for managing your loan proceeds. 

PPP Loan Update:  YOU ARE APPROVED!  Now What?

The frenzy of the first several million applications for loans under the Paycheck Protection Plan loan program has subsided slightly.  Now, what do you do when you get your money?  The SBA issued Interim Final Rules that provide a significant degree of guidance; however, there is only minimal direction on documenting the use of your loan proceeds.  Until we have further direction, here are some recommendations for managing PPP Loan proceeds to maximize your ability to obtain loan forgiveness:

• Deposit Funds in Separate Business Account.  Some advisors are recommending that you not comingle these funds in your regular operating account. A conservative approach is to set up a new account with your bank, under the name of the business that borrowed the funds, and deposit all of the loan proceeds there.  The SBA has not required segregation of funds in their Interim Final Rules.  Instead, they indicate that forgiveness will be available for “the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities.”  It may be impractical to create a separate bank account in your situation so consider your ability to clearly document all proceeds and expenditures when deciding how to handle these funds.
• Meticulous Records. Keep meticulous records of all transactions into and out of the new PPP account.
• Use the Funds.  Loan proceeds must be spent on payroll and other eligible expenses.  If you have a separate account, alert your bookkeeper, payroll company and anyone else in your organization involved in payroll processing to utilize the new PPP account to make eligible payroll expenditures.
• Non-Payroll Expenses. The funds may also be used for certain eligible non-payroll expenses but be sure to limit those to 25% of the total loan proceeds.
• Review and Reconcile. Review and reconcile your bank statement each month.
• Spend Quickly. Remember, the funds must be spent within eight weeks from the date of loan origination.
• Monitor Forgiveness Process. The rules regarding loan forgiveness may be taking shape over the next several weeks and months. Check back with your lender regarding the forgiveness application and required documentation.

These initial guidelines are helpful hints for borrowers under the PPP Loan program.  We anticipate that the SBA will issue formal guidance for borrowers.  Until then, take care to segregate funds and document your use of loan proceeds on eligible expenditures.   Check back with us in the coming weeks for an update on any new guidance from the SBA.

Attorneys in the Business and Transaction Group at Lyons Gaddis are available to advise you in relation to these loan programs and other COVID-19 related matters impacting your current and future business operations.