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Paycheck Protection Program (PPP) Loans: What to do After You Have Applied

January 18, 2021

Have you applied for the 2nd round of paycheck protection program (PPP2)? Wondering what’s next? There are a few things you should do right away. We dive in here.

*Editor’s Note: This blog has been updated as of January 18, 2021.

So you have hit “send” on your Paycheck Protection Program, or PPP2 loan application and the bank has told you the money is on the way, so now what’s next? For many who have applied, that confirmation call or email from the bank is a huge weight lifted off your shoulders. You will be avoiding layoffs and furloughs of your employees and you will have funds available to pay certain operating expenses such as rent and utilities for the next couple of months. Once you have that application in, there are a few things you need to do…read on.

What is PPP2?

Due to ongoing challenges presented by the pandemic, the new relief legislation establishes a second round of Paycheck Protection Program (PPP) loans. We cover initial FAQs in our blog, PPP2 Application FAQs and check out our blog PPP2 App Opens January 19…Are You Ready?

Organize all your documents in a due diligence folder

Now that you have sent your application to the bank, it is the perfect time to start a due diligence folder to organize all your PPP related documents. This folder should contain:

  • A copy of your application,
  • Copies of any supporting documentation you provided to the bank,
  • Copies of your PPP borrowing amount calculation (including all payroll related reports – Forms 940, 941, W3, W2s, etc.),
  • A copy of any correspondence with your bank as to the submission and acceptance of the application,
  • A timestamped print out of all official relevant laws/guidelines in effect on the date you submitted your application (remember things are changing daily)
  • And most importantly a memo discussing your organization’s reasons why it took a PPP loan.

What should be included in the memo?

Like many applicants, before you applied you spent countless hours researching PPP loans. What you probably have not done at this point is put together a memo documenting why you applied for a PPP loan and why you are eligible to do so. I know you are probably thinking, isn’t it obvious why I am taking a loan? While that may be true, all the specific reasons why your organization took out this loan are “fresh” in your mind right now. As time passes, many details may be forgotten. Remember, hindsight is 20/20. At this point it is unclear what oversight of the program will be put into place in the future by the Small Business Association (SBA) and it is a good idea to have this information prepared ahead of time in case the question is asked in the future.

We suggest that any organization that applied for a PPP loan, document in a memo, to go along with the rest of their due diligence PPP folder documents, the following –

  • The main reasons why the organization needed the PPP loan to avoid layoffs. Remember - the main purpose of PPP loans is to help employers avoid layoffs or furloughs. Some of the supporting information, if applicable, you should include would be documentation regarding –
    • Decreased cash collections
    • Drop in future sales orders
    • Cash flow projections
    • Documentation of Government shutdown orders
  • How you plan to spend the money over the next eight weeks and beyond. Remember that at least 75% of the loan must be spent on payroll and non-payroll related costs cannot exceed 25% of your loan amount. You should plan out how you are going to spend the PPP loan money over the next 8 weeks and beyond. Be sure to document any hazard pay increases or pay increases for tipped workers who are missing out on tips over the next couple of months.
  • Reasons why you didn’t bring back all of your employees. Remember, one of the main purposes of taking a PPP loan was to keep workers employed and continue being paid their pre-COVID 19 wages. If you do not bring back all your employees, we suggest you document the reasons why you are not bringing them back and putting them on the payroll. It’s important to note here that not bringing back employees because there is no work for them to do will most likely not be looked upon favorably by the SBA. The expectation is that you may be paying some employees who will not actually be performing any work (or their typical responsibilities) during the next couple of months.
  • Affiliated entities of the organization and your determination of why those entities were or were not included in your determination of eligibility for a PPP loan.

Navigating through all of the information and programs available to impacted businesses may be overwhelming. KLR advisors are available to assist you navigate the best path forward during this unprecedented crisis. With a completely remote workforce our advisors are always available.

Visit our PPP Headquarters for more information.

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