Being Smart About PPP Loan Proceeds

By Michael L. Cecere, CPA, MST
Gray, Gray & Gray, LLP

Despite a few delays and some initial confusion, the Paycheck Protection Program (PPP) loan program has distributed some $350 billion in low-interest loans to small businesses across the U.S and a new round of funding is in the works to be approved shortly. The loans are designed to help small business companies keep workers on the payroll, and can also be used to pay rent, mortgage interest payments and utility bills. An important provision of the PPP program is that most or all of the loan can be forgiven, with no repayment of principal or interest required.

But it is important to remember that the forgiveness provision is dependent on documentation that the loan proceeds are spent in the intended manner. If you are a recipient of a PPP loan you should take the following steps now so that you will be able to provide this proof when it is required.

  1. Keep PPP funds separate. Do not commingle the money received from a PPP loan with funds in your regular operating accounts. It will be easier to track and document use of the funds if you set up a separate account or accounts for the PPP money. You might wish to put 75% of the loan proceeds in an account for payroll costs and the remaining 25% in an account for authorized expenses (i.e. rent or utilities). You can then choose to write checks directly from these accounts or transfer funds on an “as needed” basis to your regular payroll or operating accounts. This will provide a paper trail for documentation purposes.

If you use a payroll provider, be sure to alert them of these transfers so that they do not debit your regular payrolls or operating account. Keep in mind that, in order to be eligible for loan forgiveness, at least 75% of the proceeds must be used for payroll costs.

  1. How should you account for the loan? Provided you comply with the loan forgiveness parameters, the loan proceeds will not be counted as income for tax purposes, nor will any portion of the loan that is forgiven be subject to federal taxation as discharge-of-indebtedness income.

It is a good idea to set up a spreadsheet to track loan proceeds and how they are spent so that you and your CPA have documentation to use when necessary to prove the PPP loan funds were used as required.

It is important to note that PPP funds should not be used to pay paid leave benefits under the Family First Coronavirus Response Act.

  1. Documentation requirements. Final requirements for documenting the use of PPP funds for loan forgiveness purposes have yet to be issued. We recommend creating a dedicated file for receipts and proof of payment for each allowable expense. This might include utility bills, rent receipts, copies of mortgage statements showing interest paid, and payroll summaries.

The bank which processed your PPP loan is required to make a determination on whether or not the loan will be forgiven within 60 days of your application. You will need to certify that the portion of the loan for which you are seeking forgiveness was used for eligible purposes.

Michael L. Cecere, CPA, MST is a Partner at Gray, Gray & Gray Certified Public Accountants & Business Advisors. You can reach Michael at or by calling (781) 407-0300.

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