In this 6-minute read:
- Why it’s important to track and keep accurate records of your PPP loan expenses
- How can you keep track of all of your PPP loan expenses?
- Consider opening a separate bank account for your PPP funds
- Creating a PPP forgiveness tracking spreadsheet
An enticing part of the Paycheck Protection Program is that the loans provided can be completely forgiven. But in order to receive that forgiveness, businesses must meet specific requirements and use the funds only for approved expenses. So you need to make sure you’re tracking your PPP expenses to maintain forgiveness eligibility.
How can you best keep track of your expenses in order to receive loan forgiveness? That’s what we’re here to show you.
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Why it’s important to track and keep accurate records of your PPP loan expenses
In order to receive forgiveness on your PPP loan, you must be able to provide verification that you meet the requirements of the Paycheck Protection Program.
- You maintain employee and compensation levels (with certain exceptions)
- You spend at least 60% of your loan on approved payroll expenses
- You spend the remaining amount on other approved expenses
This may involve heavy documentation and record-keeping of all your expenditures from your PPP loan. If you can’t verify each expense, you may not be approved for your full loan forgiveness.
How can you keep track of all of your PPP loan expenses?
We’re going to walk you through some highly recommended methods to help you keep track of your PPP loan expenses so that you can get your loan forgiveness when you apply for it.
Create a plan
First, we suggest creating a plan for exactly how you will spend your PPP loan. Whether you create that plan before your loan is approved, after your receive your disbursement or before you even apply (though don’t wait too long) is up to you. Just come up with at least a rough outline of where those funds will go, making sure that at least 60% goes towards payroll.
Determine your high priority costs and lay out a plan for the other 40% of your loan. It’s just as important to track your non-payroll costs so that you can show you used your funds on approved expenses. You may even use a spreadsheet to create your plan and follow it as you disburse your funds.
Because your PPP loan can cover anywhere between 8 and 24 weeks (you’ll select your chosen “covered period” when applying), you need to be diligent in how you are keeping track of your spending.
Consider opening a separate bank account for your PPP funds
After creating your spending plan, our next recommended course of action is to open a separate business bank account strictly for your PPP loan. Even if this happens after you receive your disbursement, you may want to deposit your fund into this new account once you receive it.
If you don’t spend any of your loan until it is in your new bank account, this will help you know exactly how much you have from your loan and, at the very least, your bank statements will show your expenditures.
You have two real options from here on how you can spend your funds to ensure they are going towards the right expenses:
- Update your payment information for any payroll, suppliers, rent, mortgage, utilities, or other approved business expenses to come directly out of your new bank account
- Pay for your expenses from your regular bank account as you normally would (should you have the funds to do so) and then reimburse your account from your PPP loan account as each expense comes out
- You can use the “write check” function that your bank offers to move funds over to your account with clear details on where the funds went
Either way you choose, you will still need to keep accurate records and receipts on each expense that the PPP loan covers.
IMPORTANT NOTE: independent contractors without employees, eligible self-employed individuals, and sole proprietors can use their PPP funds to pay themselves (and so can business owners with employees, but obviously they can’t use ALL their funds to just pay themselves, since they must maintain employment and compensation levels according to PPP rules). The rules state that at least 60% of the PPP funds must be spent on approved payroll expenses, and in the case of independent contractors without employees, eligible self-employed individuals, and sole proprietors, paying yourself counts as business payroll costs. Therefore, you can spend up to 100% of your PPP funds to pay yourself and still be eligible for full loan forgiveness.
Read more here: Approved PPP expenses for independent contractors
Keep complete, accurate records for PPP forgiveness
As mentioned, you’re going to need proper PPP documentation to prove that you are eligible when you apply for loan forgiveness. Don’t wait until the end to go back and try to pull together all of these documents. We have a couple of suggestions for keeping good records.
Create a general ledger account for PPP funds
In your accounting system, create a sub general ledger account that is specific to your PPP loan. This can help you maintain all of your documentation in your accounting system for easy tracking and (ideally) less room for error.
Create a PPP forgiveness tracking spreadsheet
As an expense is covered by your PPP loan account, keep track of it in a spreadsheet so that you know what documentation you will need to acquire in order to verify that expense, essentially creating a physical checklist for yourself to double back on once you’ve expended your loan.
When you pay for a certain expense, try to get the documentation you need right then and there and put it away for safekeeping. Check off each item on your list as you save the documentation that you need.
Save all PPP expense documents/receipts together
We recommend using a secure file-sharing app or even just a folder on your computer to digitally keep track of these documents.
The documentation you save throughout this process may include any of the following:
- Bank statements or reports from third-party payroll service providers
- Tax forms for the covered period (or that overlap this period)
- Payment receipts, checks, or account statements
- Business mortgage interest payments, including lender amortization schedule and receipts for payments
- Business rent or lease payments, including a copy of your current lease agreement and receipts from payments
- Invoices or receipts to verify business utility payments
- Invoices or receipts to verify any other approved costs
Your documentation may vary depending on your expenses, so be sure to keep everything you think could be helpful. It’s much better to be overprepared here than to not have enough. If you’re unsure of the documentation you’ll need to verify certain expenses, talk to your lender.
Have more questions about loan forgiveness? Read our Preparing for Forgiveness FAQ.
You may also like: How to get your PPP loan forgiven
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