What types of expenses are approved under PPP loans?

In this 3-minute read:

  • What expenses can my business use the PPP loan on?
  • What about payments to independent contractors?
  • What expenses can be forgiven under a PPP loan?

As businesses are receiving their loans from the Paycheck Protection Program (PPP), it’s important to know what those funds can be used for. Most legitimate business expenses may be approved, but not every expense that you’ll have for your business is forgivable

We’ll walk you through what you can use your PPP loan for and what expenses can be forgiven.

Womply has partnered with various trusted lenders to offer you the best possible rates on small business funding. Whether you need a term loan, a line of credit, or another type of small business capital, we can help! Click here to learn more.

IMPORTANT UPDATE: On June 5, 2020, President Trump signed into law new updates to PPP loan forgiveness requirements, extending the covered period to 24 weeks, reducing the minimum loan funding that must be spent on payroll to 60%, and easing the requirements for maintaining staffing and compensation levels. Please read the details here.

What expenses can my business use the PPP loan on?

Your PPP loan funds can be used for any legitimate business expense of the type your business incurred prior to February 15, 2020. That doesn’t mean that you spend the money on expenses you had before that time, but rather that you can only spend your PPP money on the types of business expenses you had up to that point. 

PPP loans should not be used for new expenses that your business has never had before and are not intended to help expand or grow your business. The purpose of the PPP loan is to help maintain payroll costs and employment, and keep your business running. 

PPP loan funding is intended to be used during the “covered period” which includes the 8 weeks (now 24 weeks) after your loan is approved. This is why the PPP loan request amount is based primarily on your average monthly payroll expenses multiplied by 2.5.

So, on that note, these are the approved expenses for which you can use your PPP loan:

  • Payroll costs, including employee benefits
  • Interest on mortgage
  • Commercial rent
  • Utilities
  • Other legitimate business expenses

Any lease agreements, mortgage plans, employee benefits, etc. must have been set prior to February 15, 2020 in order for these items to be eligible expenses for your PPP loan. 

What expenses are approved for independent contractors using the PPP loan?

Independent contractor and self-employed individuals, for the most part, can use their PPP loan on the same expenses as any other business owner. The stipulation here is that any expenses you are using your PPP loans for must have been expenses that you had in 2019 as well, as demonstrated on your 2019 Form 1040 Schedule C, which is required for your application to be approved. 

PPP loans for independent contractors and sole proprietors must be used to support ongoing operations and may not be used for new expenses or expanding the business. 

For full details on PPP application and forgiveness FAQs for independent contractors and other 1099 individuals, please see here, and read our full article about how independent contractors and self-employed individuals can get PPP loans.

What expenses can be forgiven under the PPP loan?

As you might have guessed, while you can use your loan funds for the legitimate business expenses discussed above, not all expenses are forgivable under the PPP loan. In order to have part or all of your PPP loan forgiven, at least 60% (previously 75%) of it must be used to maintain employment and payroll levels. 

Other forgivable expenses include rent, utilities, and mortgage payments.

For a complete look at how to have your PPP loan forgiven, check out our guide: Do I have to pay back my PPP loan? Here’s how to get your loan forgiven.

NEW PPP FORGIVENESS UPDATE AS OF JUNE 17, 2020

The Treasury released a new IFR and an “easy” version of the PPP loan forgiveness application on June 17, 2020. Please read the full details here.

Here’s how borrowers decide which forgiveness application to use. You may use Form 3508EZ if:

  • You are self-employed and have no employees; OR
  • You did not reduce the salaries or wages of employees by more than 25%, and did not reduce the number or hours of employees; OR
  • You experienced reductions in business activity as a result of health directives related to COVID-19, and did not reduce the salaries or wages of employees by more than 25%.

If you don’t fit into any of the above conditions, you will need to complete and submit the full PPP loan forgiveness application.

Womply can help you get the small business funding that’s right for you

Womply has partnered with various trusted lenders to offer you the best possible rates on small business funding. Whether you need a term loan, a line of credit, or another type of small business capital, we can help!

Click here to check out our small business loans resources, or schedule a free, personalized demo of Womply’s small business apps to learn more!

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