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Paycheck Protection Program Loans – Best Practices

Paycheck Protection Program Loans – Best Practices

Posted on May 14th, 2020

Many small business owners have applied for these PPP loans, and have recently, or are just about to, receive the funding.  We would like to provide some best practices as it comes to spending and tracking these funds.

  • Establish a separate bank account for the PPP funds.  
    • Use this account to pay permitted expenses only. 
    • In the case of payroll, transfer funds to your main checking account to reimburse only the permitted payroll costs.
    • Pay mortgage interest only from PPP funds, not entire mortgage payment of principal plus interest.
  • Prioritize payments of permitted Payroll Costs to maximize forgiveness – SBA guidance indicates that non-payroll costs (rent, utilities, mortgage interest) can comprise no more than 25% of the forgiven amount.
  • Document and track the use of funds in real time to be certain you can substantiate these payments when it comes time to apply for forgiveness – keep payroll reports, canceled checks, payment receipts and other documents verifying payments.
  • Watch for further Treasury and SBA clarifications regarding forgiveness – there are still many areas that require additional guidance.
  • Keep in mind that under the recent CARES Act, PPP borrowers CAN defer the employer’s share of Social Security tax otherwise due on or after March 27, 2020, but only until such time as the borrower receives a decision from the lender that the PPP loan is forgiven.
  • PPP borrowers are not eligible for the Employee Retention Credit. Our understanding is that even if the funds are repaid, the borrower remains ineligible for this credit.
  • Continue to follow up with your lender to find out if they are providing additional guidance on the forgiveness process.
  • If you receive or have received additional loans or grants from other SBA sources, be sure to review the coordination of the benefits received from the loans / grants.  Any duplication of benefits will result in a reduction in available funding from your PPP loan.

The amount of loan forgiveness, based on the 8-week covered period following the loan issuance, may be reduced if:

  • Less than 75% of the loan is spent on payroll costs 
  • The number of your full-time equivalent (FTE) employees is lower during the covered 8-week period than in the comparison period

The salary or wages of an employee are less than 75% of salary or wages in the 1st quarter of 2020 The FTE reduction and/or the wage reduction is not eliminated by June 30, 2020 You received an advance of up to $10,000 on an EIDL loan

One of the certifications in the loan application was that the funds would not be used for unauthorized purposes.  As a reminder, the permitted uses for the PPP loans are:


Payroll Costs, which include:

  • Salary, wages, commissions or similar compensation
  • Cash tips
  • Paid time off for vacation, parental, family, medical or sick leave
  • Severance payments
  • Self-employment earnings for a partner, member, or sole proprietor
  • Employer share of group health care coverage insurance premiums for employees
  • Employer share of retirement benefits for employees
  • State and local taxes assessed on compensation, like State Unemployment



  • Electricity
  • Gas
  • Water
  • Transportation
  • Telephone
  • Internet access


Payroll Costs do not include:

  • Compensation to an individual in excess of $100,000 as annualized (for the 8-week covered period, that would be wages in excess of $15,385
  • The employer’s share of Federal payroll taxes (Social Security, Medicare, FUTA)
  • Qualified sick and family leave wages for which a credit is allowed under the Families First Coronavirus Response Act
  • Compensation to an individual whose principal place of residence is outside the U.S.
  • Sole proprietor payments for health insurance or retirement benefits


  • Lease agreements that were not in force before 2/15/20


  • Services which were not in service before 2/15/20

Debt which was incurred after 2/15/20; does not include any prepayments or principal

Interest on real or personal property obligations incurred before February 15, 2020*

*For Schedule C filers, these are permitted costs only if you had claimed these expenses on your 2019 Form 1040 Schedule C.

The U.S. Department of the Treasury publishes answers to frequently asked questions (FAQs) about Paycheck Protection Program (PPP) loans. The answers to these FAQs can be found at:

On Wednesday May 13, 2020, the Treasury Department published the following FAQ #46:

Question: How will SBA review borrowers’ required good-faith certification concerning the necessity of their loan request?

Answer: When submitting a PPP application, all borrowers must certify in good faith that “[c]current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” SBA, in consultation with the Department of the Treasury, has determined that the following safe harbor will apply to SBA’s review of PPP loans with respect to this issue: Any borrower that, together with its affiliates,20received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith.

SBA has determined that this safe harbor is appropriate because borrowers with loans below this threshold are generally less likely to have had access to adequate sources of liquidity in the current economic environment than borrowers that obtained larger loans. This safe harbor will also promote economic certainty as PPP borrowers with more limited resources endeavor to retain and rehire employees. In addition, given the large volume of PPP loans, this approach will enable SBA to conserve its finite audit resources and focus its reviews on larger loans, where the compliance effort may yield higher returns.

Importantly, borrowers with loans greater than $2 million that do not satisfy this safe harbor may still have an adequate basis for making the required good-faith certification, based on their individual circumstances in light of the language of the certification and SBA guidance. SBA has previously stated that all PPP loans in excess of $2 million, and other PPP loans as appropriate, will be subject to review by SBA for compliance with program requirements set forth in the PPP Interim Final Rules and in the Borrower Application Form. If SBA determines in the course of its review that a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request, SBA will seek repayment of the outstanding PPP loan balance and will inform the lender that the borrower is not eligible for loan forgiveness. If the borrower repays the loan after receiving notification from SBA, SBA will not pursue administrative enforcement or referrals to other agencies based on its determination with respect to the certification concerning necessity of the loan request. SBA’s determination concerning the certification regarding the necessity of the loan request will not affect SBA’s loan guarantee.

On Friday April 24, 2020, the Treasury Department published the following FAQ #31:

Question: Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan? 

Answer: In addition to reviewing applicable affiliation rules to determine eligibility, all borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application. Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers still must certify in good faith that their PPP loan request is necessary. Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification. 

Lenders may rely on a borrower’s certification regarding the necessity of the loan request. Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith.

Our firm’s assessment of this guidance is that it is principally aimed at large companies, particularly those that are publicly traded.  However, we are advising all our clients that have applied for a PPP loan to document in writing the reasons why current economic uncertainty made the PPP loan request necessary to support ongoing operations.  If possible, it would be advisable to put this documentation in the corporate minutes.

If you would like to discuss any of the points raised in this communication with us, or other issues, we encourage you to reach out directly to your BHCB team contact.  We continue to be here, working for you, to provide ongoing support and information.