PPP 7(a) Use of Funds – Tuesday, March 31, 2020 9:54PM

We are hearing lots of confusion about the use of PPP funds so let’s try to clear that up.  There are 2 facets that should be discussed. 

  1. Permitted use
  2. Forgivable portion

The primary purpose of this loan is to help pay your employees while revenues are down.  That is why it is called a Payroll Protection Program and perhaps we should begin calling it that versus PPP.   Because of its purpose, the use of proceeds is restricted to just a few items.  Allowable uses are:

  • Monthly Payroll Costs (there are limitations on this for highly compensated employees)
  • Health Insurance Premiums
  • Retirement expenses
  • Loan Interest
  • Rent
  • Utilities

You will have to certify under risk of criminal fraud charges that you will use the funds for only these purposes on your application. 

This means you are not permitted to:

  • Pay yourself back for loans you made to the business.
  • Pay down principal on loans.
  • Put a down payment on your new Mercedes.

Calculating the forgivable portion is more complex and ultimately will be based on multiple factors. 

Funds must be used:

  • To pay the above permitted items.
  • During the 8 week period immediately after the origination of the loan. To the extent it is used after that 8 week period, that portion cannot be forgiven.
  • For expenses incurred during the 8 week period. Meaning you can use it, for instance, for May rent.  But you can’t prepay rent for July-December.  You can pay 401K matching and profit sharing for payroll during the 8 weeks, but not your balance due for 2019.  It must be for expenses that belong to this 8 week time period.  Documentation must be kept for 3 years substantiating the use of funds.

To qualify for forgiveness:

  • You must have at least the same number of employees by 6/30 as you did on 2/15.  To the extent you have fewer employees, a portion of the loan becomes unforgivable.
  • Your employees must be making the same wages by 6/30 that they were on 2/15. To the extent staff wages are lower than on 2/15, a portion of the loan may become unforgivable.